Question

If a Current Account Deficit persists over time, it may increase a country's:

Options

• Foreign exchange reserves

• Unilateral transfer receipts

• Current account surplus

• External debt burden

Answer 1

A Current Account Deficit, when financed through capital inflows or borrowing from abroad, may increase a country's external debt burden if it persists. Persistent deficits imply continuous reliance on foreign borrowing and capital inflows.