Question

A current account deficit means that:

Options

• Receipts = Payments, so there is no net lending or borrowing

• Receipts > Payments, so the country is a net lender

• Exports of goods exceed imports of goods

• Receipts < Payments, so the country is a net borrower

Answer 1

A current account deficit occurs when Receipts $<$ Payments. Because the country pays out more to the rest of the world than it receives, it must finance the gap by borrowing, making it a net borrower.