When a country realizes a deficit on its current account:
A) Its net foreign investment position becomes positive
B) It becomes a net demander of funds from other countries
C) It realizes an excess of imports over exports on goods and services
D) It becomes a net supplier of funds to other countries

Question

Quizplus · Accepted Answer

A deficit on the current account means that a country is importing more goods and services than it is exporting. This leads to a net demand for funds from other countries to pay for the imports. Therefore, choice B (It becomes a net demander of funds from other countries) is the best option. Choice A is incorrect because a deficit on the current account would reduce a country's net foreign investment position. Choice C is partially correct in identifying an excess of imports, but does not address the broader issue of the current account deficit. Choice D is incorrect because a deficit on the current account means that a country is not able to supply funds to other countries.

When a Country Realizes a Deficit on Its Current Account