ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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a larger net income deficit.
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a financial account surplus.
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a smaller net income deficit
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no change to the financial account outcome because they are separate entities.
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Detailed explanation-1: -Thus, this deficit occurs when a nation’s expenditure is more than its income. Current Account Deficit marks the disbalance in a nation’s economy, which indicates more expenditure on imports and less income through exports.
Detailed explanation-2: -A nation has a current account deficit when it sends more money to sources abroad than it receives from sources abroad. A trade deficit is normally the largest component of a current account deficit. The trade deficit or surplus reflects the total value of all goods exported and all goods imported.
Detailed explanation-3: -Current Account Deficit and Fiscal Deficit, both of which occur when a country’s spending exceeds its income, are referred to as twin deficit problem because they frequently reinforce one another. For example, a high fiscal deficit causes a higher current account deficit, and vice versa.
Detailed explanation-4: -A trade deficit creates downward pressure on a country’s currency under a floating exchange rate regime. With a cheaper domestic currency, imports become more expensive in the country with the trade deficit. Consumers react by reducing their consumption of imports and shifting toward domestically produced alternatives.