In general,large current account deficits have to be financed by:
A)capital outflows abroad.
B)capital inflows from abroad.
C)trade barriers.
D)none of the above.

Question

Quizplus · Accepted Answer

Large current account deficits mean that a country is spending more on imports than it is earning from exports. To finance this gap, a country must attract capital from abroad, in the form of foreign investment or borrowing. Therefore, the correct answer is capital inflows from abroad (choice B). Choice A is incorrect because capital outflows would worsen the deficit. Choice C is incorrect because trade barriers would restrict imports and exports, which would not address the issue of financing the deficit. Lastly, choice D is incorrect because some form of financing is necessary to sustain a large current account deficit.

In General,large Current Account Deficits Have to Be Financed By