IPE Midterm Practice Test

Which scenario describes a current account deficit?

A country exporting more than it imports A country importing more than it exports A country with balanced trade A country with rising foreign exchange reserves

Correct Answer:

A country importing more than it exports

Explanation:

Current account status depends on the net flow of goods, services, income, and transfers with the rest of the world. A deficit occurs when a country spends more on foreign goods and services than it earns from selling its own abroad, meaning imports exceed exports. So, when a country imports more than it exports, the trade side is negative, pulling the current account into deficit. If a country exports more than it imports, it would run a current account surplus. Balanced trade suggests the trade balance is zero, though the overall current account could still move if income or transfers are imbalanced. Rising foreign exchange reserves reflect central bank actions and can accompany various current account outcomes, but by themselves don’t define a deficit.

Access more questions from this quiz

Continue to IPE Midterm Practice Test for more practice questions and the full quiz experience.

Access More Questions