Question

If a country has a current account deficit, which of the following must be true? It must also show a deficit in its capital account. It must also show a deficit in its capital account. A It must show a surplus in its capital account. It must show a surplus in its capital account. B It must increase the purchases of foreign goods and services. It must increase the purchases of foreign goods and services. C It must increase the domestic interest rates on its bonds. It must increase the domestic interest rates on its bonds. D It must limit the flow of foreign capital investment.

Answer 1

Answer:

A. It must show a surplus in its capital account.

Explanation:

A deficit can be defined as an amount by which money, falls short of its expected value.

In Financial accounting, deficit is usually as a result of revenue falling below expenses or expense exceeding revenue at a specific period of time.

For instance, if in a country liabilities exceeds assets or import exceeds export there would be a deficit in the financial account of the country.

Generally, a deficit on the current account of a country leads to a surplus on the financial and capital account. This is simply as a result of a country having to import more goods and services than it is exporting to other countries in trade.

Hence, if a country has a current account deficit, it must show a surplus in its capital account.

In conclusion, a deficit on the current account is because the value of goods and services exported is lower than the value of goods and services being imported in a particular country.