A capital account surplus might be expected to cause a current account deficit because the associated ?
Correct answer: C. capital inflow would cause the nation's currency to appreciate contributing to a trade deficit
- A. capital outflow would cause the nation's currency to depreciate contributing to a trade deficit
- B. capital inflow would cause the nation's currency to depreciate contributing to a trade deficit
- C. capital inflow would cause the nation's currency to appreciate contributing to a trade deficit
- D. capital outflow would cause the nation's currency to appreciate contributing to a trade deficit
Explanation
A capital-account surplus generally reflects capital inflows, which increase demand for the domestic currency and cause appreciation. An appreciated currency makes exports less competitive and imports cheaper, contributing to a current-account or trade deficit.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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