A deﬁcit on the current account
A) normally causes a surplus on the capital and ﬁnancial account.
B) normally causes a deﬁcit on the capital and ﬁnancial account.
C) has no relationship to the capital and ﬁnancial account.
D) means that a nation is making international transfers.

Question

Quizplus · Accepted Answer

A deficit on the current account typically leads to a surplus on the capital and financial account because when a country spends more on foreign trade than it earns, it must finance the deficit by borrowing from foreign lenders or selling domestic assets to foreign buyers, which are recorded as inflows in the capital and financial account.

A Deﬁcit on the Current Account