Question

A deficit in the Capital Account occurs when:

Options

• \[\text{Capital inflows} > \text{Capital outflows}\]

• Only credit entries are recorded

• \[\text{Capital inflows} < \text{Capital outflows}\]

• \[\text{Capital inflows} = \text{Capital outflows}\]

Answer 1

A deficit occurs when \[\text{Capital inflows} < \text{Capital outflows}\]. This means outflows such as repaying loans and purchasing foreign assets exceed the inflows received.