Economic Awareness - Sectors of Indian Economy
If a country has a deficit in its Current Account, which of the following is most likely to happen in the Capital and Financial Account?
If a country has a deficit in its Current Account, which of the following is most likely to happen in the Capital and Financial Account?
medium Q15 of 15
Step-by-Step Solution
Step 1: Understand Balance of Payments identity
The Balance of Payments must balance, so a deficit in the Current Account is usually offset by a surplus in the Capital and Financial Account.Step 2: Analyze options
Surplus to offset the Current Account deficit correctly states that a Capital and Financial Account surplus offsets a Current Account deficit. Deficit to match the Current Account deficit is incorrect as deficits cannot match on both sides. No relation between the two accounts ignores the accounting identity. Capital Account deficit and Financial Account surplus is inconsistent.Final Answer:
Surplus to offset the Current Account deficit → Option AQuick Check:
Current Account deficit = Capital and Financial Account surplus ✅
Quick Trick: BoP always balances: deficit = surplus on other side.
Common Mistakes:
MISTAKES- Assuming accounts can both be in deficit simultaneously.
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