Answer to Question #150312 in Macroeconomics for Kane

Question

If a country has a current account deficit, which of the following must be true?
a. It must also show a deficit in its capital account
b. It must show a surplus in its capital account
c. It must increase the purchases of foreign goods and services.
d. It must increase the domestic interest rates on its bonds.
e. It must limit the flow of foreign capital investment.

Answer 1

(b) It must show a surplus in its capital account.

This is because in the long run, the balance of payments equals zero. Deficits in one account will be offset by surpluses in the other account