Question:
In the Balance of Payments, a deficit in the Current Account is typically financed by:
(1) a surplus in the Capital and Financial Account.
(2) an increase in the country’s foreign reserves.
(3) a decrease in the government budget deficit.
(4) an increase in exports of goods.
(5) a reduction in external debt.
Correct Answer:
(1)
Answer Explanation:
The Balance of Payments must sum to zero. If a country spends more than it earns (Current Account Deficit), it must borrow the difference or sell assets, creating a surplus in the Financial Account.
Topic: International Trade Year: 2024
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