A current account deficit
A) is never possible because the balance of payments must always balance.
B) can seldom be larger than 50 percent of a capital account surplus.
C) can help finance a government deficit indefinitely.
D) can help finance a government deficit if foreign lenders accumulate government bonds.
E) does not include investment earnings that are part of the capital account.

Question

Quizplus · Accepted Answer

A current account deficit can be financed by a government deficit if foreign lenders are willing to buy government bonds, effectively lending money to the government. This allows the country to spend more on imports than it earns from exports, with the gap financed by borrowing.

A Current Account Deficit