ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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True
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False
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This is true most of the time but can theoretically be false
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None of the above
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Detailed explanation-1: -A current account deficit indicates that a country is importing more than it is exporting. Emerging economies often run surpluses, and developed countries tend to run deficits. A current account deficit is not always detrimental to a nation’s economy-external debt may be used to finance lucrative investments.
Detailed explanation-2: -Similarly, if there is a deficit in the capital account, it indicates an outflow of currency from the country. The current account is mainly concerned with the receipts and payment of cash and non-capital items. The capital account is mainly concerned with the sources and utilisations of the capital items.
Detailed explanation-3: -A current account deficit is likely to imply a trade deficit. That means more goods and services are flowing into the country than are flowing out. A capital account surplus means more spending is flowing into the country for the purchase of assets than is flowing out.
Detailed explanation-4: -A deficit on the current account means that the value of imports is greater than the value of exports. A surplus on the current account means that the value of imports is less than the value of exports.