Current Account Deficit Consequences 05/03/25 Flashcards
(30 cards)
What is a current account deficit?
A current account deficit occurs when a country’s total imports of goods, services, and transfers exceed its total exports.
True or False: A current account deficit can lead to increased foreign debt.
True
Fill in the blank: A sustained current account deficit may result in a depreciation of the ______.
national currency
What is one potential consequence of a current account deficit on domestic investment?
It may lead to reduced domestic investment due to reliance on foreign capital.
Multiple Choice: Which of the following is NOT a consequence of a current account deficit? A) Increased foreign influence B) Higher interest rates C) Improved trade balance D) Currency depreciation
C) Improved trade balance
How can a current account deficit affect inflation rates?
It can lead to higher inflation rates as a depreciating currency makes imports more expensive.
True or False: A current account deficit is always a negative indicator for an economy.
False
What is one way a current account deficit can be financed?
Through borrowing from foreign lenders or attracting foreign investment.
Fill in the blank: A current account deficit can lead to a loss of ______ in the international market.
competitiveness
What is a common long-term risk associated with a persistent current account deficit?
It may lead to a financial crisis if the country cannot meet its external obligations.
What are the three main components of the Balance of Payments?
Current Account, Financial Account, and Capital Account.
True or False: The Current Account primarily records transactions related to goods, services, income, and current transfers.
True.
Fill in the blank: The Current Account includes trade in _____, services, and income.
goods.
What does the Financial Account measure?
The Financial Account measures the net change in ownership of national assets.
Which account records the flow of financial investments and loans?
The Financial Account.
What is the primary focus of the Capital Account?
The Capital Account focuses on capital transfers and the acquisition or disposal of non-produced, non-financial assets.
True or False: A surplus in the Current Account indicates that a country exports more than it imports.
True.
What is the relationship between the Current Account and the Financial Account?
They are interconnected; a surplus in the Current Account typically corresponds to a deficit in the Financial Account, and vice versa.
What is the Current Account in the Balance of Payments?
The Current Account is a component of the Balance of Payments that records all transactions involving the exchange of goods, services, income, and current transfers.
True or False: The Current Account includes capital transfers.
False
Fill in the blank: The Current Account consists of trade in goods, trade in services, income from investments, and __________.
current transfers
What does a surplus in the Current Account indicate?
A surplus in the Current Account indicates that a country is exporting more goods, services, and income than it is importing.
