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    Question

    A country is said to be experiencing a Current Account

    Deficit when _____
    A Its exports of goods exceed its imports of goods Correct Answer Incorrect Answer
    B Its capital inflows are greater than capital outflows Correct Answer Incorrect Answer
    C The value of its imports of goods, services, and transfers exceeds the value of its exports Correct Answer Incorrect Answer
    D Government expenditure exceeds government revenue Correct Answer Incorrect Answer
    E Foreign exchange reserves are not sufficient to cover the import bill of the country Correct Answer Incorrect Answer

    Solution

    The Current Account of the Balance of Payments includes trade in goods and services, primary income (like interest and dividends), and secondary income (transfers such as remittances). A Current Account Deficit (CAD) occurs when a country’s total payments on the current account exceed its total receipts, meaning imports and outward payments are greater than exports and inward receipts.

    • Option A describes a trade surplus
    • Option B relates to the capital account
    • Option D refers to fiscal deficit
    • Option E refres to a situation of Forex or BoP crisis when an extreme  deficit depletes reserves.
     

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