A ____________ account deficit is financed by net
This question was previously asked in
Shift 11/06/2023 3:30 PM - 6:30 PM
A
Capital
B
Current
C
Saving
D
Recurring
Correct Answer
Current
Detailed Explanation
An account deficit that is financed by net capital flows from the rest of the world, resulting in a capital account surplus, is typically referred to as a (2) Current account deficit.
Here's the explanation:
- The current account includes the balance of trade (exports and imports of goods and services), net income from abroad, and net transfers (like foreign aid). When the value of imports exceeds exports and when there's a net outflow of income and transfers, it leads to a current account deficit.
- To finance a current account deficit, a country may attract capital from the rest of the world. This capital includes foreign investment, loans, or other financial inflows. These capital flows are recorded in the **capital account**.
So, a current account deficit is typically financed by net capital flows, resulting in a capital account surplus.
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