Economic Awareness - Sectors of Indian Economy
Which of the following statements about the Current Account deficit is correct?
Which of the following statements about the Current Account deficit is correct?
medium Q7 of 15
Step-by-Step Solution
Step 1: Understand Current Account deficit implications
A Current Account deficit means the country imports more goods, services, and transfers than it exports.Step 2: Analyze options
It must be financed by a surplus in the Capital and Financial Account correctly states that a Current Account deficit must be financed by a surplus in the Capital and Financial Account to maintain BoP balance. It always indicates a weak economy is incorrect as deficits can occur in growing economies. It means the country is exporting more than importing is the opposite of a deficit. It is unrelated to foreign exchange reserves is incorrect because foreign exchange reserves can be used to finance deficits.Final Answer:
It must be financed by a surplus in the Capital and Financial Account → Option CQuick Check:
Current Account deficit = Capital and Financial Account surplus ✅
Quick Trick: BoP identity ensures deficit financing.
Common Mistakes:
MISTAKES- Assuming deficit always means economic weakness.
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