In the balance of payments accounting system,if a country
A) has a current account deficit, it must have a capital account surplus.
B) has a current account deficit, it must have a capital account deficit.
C) has a current account surplus, it must have a capital account surplus.
D) has a capital account deficit, it must have a current account deficit.
E) has a capital account surplus, it must have a current account surplus.

Question

Quizplus · Accepted Answer

This is known as the "twin deficits" hypothesis. When a country has a current account deficit, it means that it is importing more than it is exporting. To finance this deficit, it will need to borrow from foreign countries, which will create a capital account surplus. Therefore, an equal and opposite relationship exists between the current account and the capital account.

In the Balance of Payments Accounting System,if a Country