Which of the following is true of a country that is running a deficit on a balance-of-payments current account?

Question

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If a country is running a deficit on a balance-of-payments current account, it means that it is importing more goods and services than it is exporting. This can lead to an excess supply of the country's currency on the foreign exchange market, which can result in depreciation of the currency. This is because there is more supply than demand for the currency. Option A is therefore incorrect. Option C is also incorrect because a deficit on the current account is not necessarily related to interest rates. Option D is incorrect because a shortage of the country's currency would lead to an appreciation of the currency. Option E is incorrect because neo-mercantilism refers to a policy of promoting exports and restricting imports, whereas a deficit on the current account means that the country is importing more than it is exporting.

Which of the Following Is True of a Country That