Except for a statistical error under flexible exchange rates, any current account deficit

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A current account deficit occurs when a country imports more goods and services than it exports, resulting in a net outflow of currency. Under a system of flexible exchange rates, the currency value adjusts to restore equilibrium, which could lead to a decrease in imports and an increase in exports. However, in the short run, a deficit must be financed by capital inflows or an increase in unilateral transfers, both of which fall under the capital account. Therefore, a current account deficit must be completely offset by a capital account surplus, which can happen through borrowing or investment from foreign sources. Unilateral transfers, such as foreign aid and remittances, can offset some of the deficit, but they cannot fully compensate for it. A trade surplus, mentioned in option D, would actually indicate that the country is exporting more than it is importing, leading to a current account surplus instead of a deficit.

Except for a Statistical Error Under Flexible Exchange Rates, Any