A deficit in the overall balance of payments of a nation generally is an indication that:

Question

Quizplus · Accepted Answer

A deficit in the overall balance of payments means that a country is spending more on imports and foreign investments than it is receiving from exports and foreign investors. To finance this deficit, the country's monetary authority must buy foreign currency, which leads to an increase in the supply of its domestic currency and a decrease in its value. Therefore, choice B (the country's monetary authority is buying foreign currency) is the correct answer.

A Deficit in the Overall Balance of Payments of a Nation