Current Account: Definition, Components, and Importance

Question 1

Which of the following is excluded from a country's current account?

Accepted Answer

Capital inflows

Answer

Exports of goods

Answer

Imports of services

Answer

Income from abroad

Question 2

A country with a current account deficit implies:

Accepted Answer

Imports exceed exports

Answer

Exports exceed imports

Answer

International trade is balanced

Answer

Domestic investment exceeds foreign investment

Question 3

What is the primary difference between a trade deficit and a current account deficit?

Accepted Answer

Trade deficit includes only goods, while current account deficit includes goods and services

Answer

Current account deficit includes only services, while trade deficit includes goods and services

Answer

They are the same concept

Answer

Trade deficit is always larger than current account deficit

Question 4

Which tool is used to measure a country's current account?

Accepted Answer

Balance of payments

Answer

Consumer price index

Answer

Gross domestic product

Answer

Human Development Index

Question 5

Which of the following is NOT included in the calculation of a country's Current Account?

Accepted Answer

Capital inflows

Answer

Exports of goods

Answer

Imports of services

Question 6

Which of these is NOT included in the Current Account?

Accepted Answer

Capital flows

Answer

Goods and services

Answer

Income

Answer

Current transfers

Question 7

Which of the following is not included in the calculation of a country's Current Account?

Accepted Answer

Official development assistance

Answer

Exports of goods

Answer

Imports of services

Answer

Net investment income

Question 8

A nation experiencing a Current Account surplus is likely to have a:

Accepted Answer

Net inflow of foreign capital

Answer

Decrease in its currency's value

Answer

Slowdown in economic growth

Answer

Higher national debt

Question 9

Which of the following is a potential advantage of maintaining a Current Account surplus?

Accepted Answer

Increased investment opportunities

Answer

Reduced economic competitiveness

Answer

Increased dependence on foreign borrowing

Answer

Weakening of the domestic currency

Question 10

Factors that can influence a country's Current Account include:

Accepted Answer

Exchange rates, interest rates, and government policies

Answer

Only government policies

Answer

Only exchange rates

Question 11

The Current Account is a component of the:

Accepted Answer

Balance of Payments

Answer

National Accounts

Answer

Government Budget

Question 12

A country with a Current Account deficit is

Accepted Answer

Importing more than it is exporting

Answer

Giving more aid than it is receiving

Answer

Receiving more income from abroad than it is paying

Answer

Exporting more than it is importing

Question 13

The Current Account is often used as an indicator of a country's

Accepted Answer

Economic health and global trade performance

Answer

Political stability

Answer

Social welfare

Question 14

Which of the following would typically lead to a depreciation of a country's currency?

Accepted Answer

A Current Account deficit

Answer

A Current Account surplus

Answer

A low interest rate

Answer

A high level of foreign investment

Question 15

The government can use fiscal policy to influence the Current Account by:

Accepted Answer

Adjusting taxes and government spending

Answer

Setting interest rates

Answer

Negotiating trade agreements

Answer

Controlling the money supply

Question 16

Which of the following is a potential benefit of a Current Account surplus?

Accepted Answer

Appreciation of the currency

Answer

Reduced economic growth

Answer

Increased inflation

Answer

Higher unemployment

Question 17

A country with a persistently high Current Account deficit is likely to face:

Accepted Answer

Increased external debt

Answer

High economic growth

Answer

Low unemployment

Answer

Improved living standards

Question 18

The Current Account is a:

Accepted Answer

Net monetary value

Answer

Gross monetary value

Answer

Average monetary value

Answer

Median monetary value

Question 19

Which of the following is NOT a factor that can affect the Current Account?

Accepted Answer

Climate change (in the short run)

Answer

Government policies

Answer

Exchange rates

Answer

Technological advancements

Question 20

The Current Account is expressed in:

Accepted Answer

Units of currency (e.g., US dollar, Euro)

Answer

Index

Answer

Percentage

Answer

Ratio

Question 21

Which of the following is NOT included in the calculation of the Current Account?

Accepted Answer

Capital Account transactions

Answer

Net income from abroad

Answer

Exports of goods and services

Answer

Imports of goods and services

Question 22

A country with a Current Account surplus is:

Accepted Answer

Exporting more than it is importing.

Answer

Importing more than it is exporting.

Answer

Investing more abroad than it is receiving from abroad.

Answer

Experiencing no net flow of goods and services.

Question 23

The Current Account is influenced by:

Accepted Answer

Both fiscal and monetary policies

Answer

Monetary policy only

Answer

Fiscal policy only

Answer

Neither fiscal nor monetary policy

Question 24

A persistent Current Account deficit can lead to:

Accepted Answer

Accumulation of foreign debt

Answer

Reduced inflation

Answer

Increased domestic investment

Answer

Currency appreciation

Question 25

How does a depreciation of the domestic currency affect the Current Account?

Accepted Answer

It makes domestic exports cheaper and foreign imports more expensive.

Answer

It has no impact on the Current Account.

Answer

It makes domestic exports more expensive and foreign imports cheaper.

Question 26

Which of the following is NOT a potential disadvantage of a Current Account deficit?

Accepted Answer

Increased economic growth

Answer

Inflationary pressures

Answer

Loss of economic sovereignty

Answer

Currency depreciation

Question 27

The primary purpose of the Current Account is to:

Accepted Answer

Record a country's international transactions in goods, services, and income

Answer

Set interest rates

Answer

Measure economic growth

Answer

Control inflation

Question 28

What is the Current Account in a country's Balance of Payments?

Accepted Answer

A record of all transactions involving goods, services, and income between a country and the rest of the world.

Answer

A record of a country's foreign direct investments.

Answer

A measure of a country's overall economic output.

Answer

A record of a country's financial transactions with foreign entities.

Question 29

Which of these is NOT a component of the Current Account?

Accepted Answer

Capital flows (e.g., foreign direct investment)

Answer

Trade in goods (e.g., exports, imports)

Answer

Trade in services (e.g., tourism, banking)

Answer

Income from investments (e.g., dividends, interest)

Question 30

What does a Current Account surplus indicate?

Accepted Answer

A country's exports of goods, services, and income exceed its imports.

Answer

A country has a higher rate of economic growth than its trading partners.

Answer

A country's imports of goods, services, and income exceed its exports.

Answer

A country has a higher level of foreign investment than domestic investment.

Question 31

What is a key benefit of a Current Account surplus for a country?

Accepted Answer

Increased foreign exchange reserves, strengthening the country's financial position.

Answer

Higher economic growth, as more goods and services are being produced.

Answer

Lower unemployment, as businesses expand due to increased exports.

Answer

Reduced inflation, as the surplus indicates a strong economy.

Question 32

What is a major concern associated with a Current Account deficit?

Accepted Answer

Increased foreign debt, as a country borrows from abroad to finance the deficit.

Answer

Reduced inflation, as a deficit indicates lower demand.

Answer

Higher economic growth, as a deficit implies increased investment.

Question 33

How does a Current Account deficit typically affect a country's exchange rate?

Accepted Answer

It tends to depreciate (weaken) the domestic currency.

Answer

It depends on other factors, such as interest rates and inflation.

Answer

It tends to appreciate (strengthen) the domestic currency.

Answer

It has no effect on the exchange rate, as they are independent.

Question 34

Which factors can contribute to a Current Account deficit?

Accepted Answer

High imports, low exports, and high payments of investment income (e.g., dividends) to foreign investors.

Answer

Low imports, high exports, and low payments of investment income to foreign investors.

Answer

High exports, low imports, and high payments of investment income to foreign investors.

Question 35

Which of the following are policy tools used to address a Current Account imbalance?

Accepted Answer

Fiscal policy, monetary policy, and exchange rate policy.

Answer

Monetary policy and exchange rate policy only.

Answer

Fiscal policy and monetary policy only.

Question 36

How can a Current Account imbalance affect a country's economic growth?

Accepted Answer

A large and persistent deficit can lead to a loss of competitiveness and slower growth, as a country becomes more indebted.

Answer

It has no impact on economic growth, as it only reflects trade flows.

Answer

It can lead to higher inflation and faster growth, as more money is circulating.

Question 37

What is the relationship between the Current Account and the Capital and Financial Account in a country's Balance of Payments?

Accepted Answer

They must sum to zero, reflecting the double-entry bookkeeping system of international transactions.

Answer

They are always equal, reflecting a balance between trade and financial flows.

Answer

They have no relationship, as they measure different aspects of the economy.

Answer

They are always opposite, with a surplus in one always being matched by a deficit in the other.

Question 38

The Current Account records a country's financial transactions with the rest of the world. Which of the following is a component of the Current Account?

Accepted Answer

Trade in goods, services, income, and current transfers.

Answer

Long-term financial investments and foreign direct investments.

Answer

Government spending and tax revenues.

Question 39

A country's Current Account is in surplus when:

Accepted Answer

Exports of goods, services, income, and current transfers exceed imports.

Answer

The country is experiencing a period of low inflation.

Answer

Imports of goods, services, income, and current transfers exceed exports.

Question 40

Which of the following is NOT considered a current transfer?

Accepted Answer

Foreign direct investment.

Answer

Gifts from non-residents.

Answer

Remittances from migrants.

Answer

Foreign aid.

Question 41

A country with a persistent Current Account deficit may face:

Accepted Answer

Increased external debt and vulnerability to economic shocks.

Answer

Higher domestic inflation and a stronger currency.

Answer

Increased unemployment and lower levels of GDP growth.

Question 42

The primary determinant of a country's Current Account balance is:

Accepted Answer

The competitiveness of its goods and services in global markets.

Answer

The level of government spending on social welfare programs.

Answer

The country's population growth rate.

Question 43

An improvement in a country's Current Account balance, from a deficit to a surplus, could indicate:

Accepted Answer

Increased exports or decreased imports, leading to a more positive trade balance.

Answer

A decline in domestic investment and economic activity.

Answer

A weakening of the country's currency.

Question 44

Which policy measure is most likely to improve a country's Current Account balance?

Accepted Answer

Promoting export-oriented industries and reducing tariffs on imported goods.

Answer

Raising interest rates to attract foreign investment.

Answer

Increasing government spending on social welfare programs.

Question 45

A persistent Current Account surplus can be indicative of:

Accepted Answer

A lack of domestic investment opportunities and potential economic stagnation.

Answer

A country's reliance on foreign aid and grants.

Answer

A strong economy with high growth and employment.

Question 46

The Current Account balance is a key indicator of a country's:

Accepted Answer

External economic health and financial stability.

Answer

Level of government debt and budget deficit.

Answer

Inflation rate and consumer price index.

Answer

Productivity and technological advancements.

Question 47

Which of the following transactions would contribute to the UK's current account deficit?

Accepted Answer

UK tourists spending money abroad

Answer

Foreigners purchasing UK government bonds

Answer

Foreigners investing in UK companies

Answer

UK businesses importing goods from overseas

Question 48

What is the primary component contributing to the UK's current account deficit?

Accepted Answer

Trade in goods and services

Answer

Current transfers

Answer

Net income from abroad

Answer

Investment income

Question 49

Which of the following factors is likely to cause an appreciation in the value of the pound sterling?

Accepted Answer

A surplus on the current account

Answer

A deficit on the current account

Answer

A political crisis in the UK

Answer

A decrease in interest rates

Question 50

What is a potential long-term consequence of a country running a persistent current account deficit?

Accepted Answer

Depreciation of the currency

Answer

Lower levels of inflation

Answer

Increased economic growth

Answer

Appreciation of the currency

Question 51

Which of the following government policies is most likely to reduce the UK's current account deficit?

Accepted Answer

Increasing exports

Answer

Raising interest rates

Answer

Decreasing government spending

Answer

Devaluing the pound sterling

Question 52

What is the primary purpose of the current account?

Accepted Answer

To summarize a country's economic transactions with the rest of the world

Answer

To measure a country's level of development

Answer

To track changes in a country's GDP

Question 53

Which of the following is NOT included as a component of the current account balance?

Accepted Answer

Capital flows

Answer

Investment income

Answer

Current transfers

Answer

Trade in goods and services

Question 54

What is indicated by a positive current account balance?

Accepted Answer

A country is earning more foreign currency than it is spending

Answer

A country is spending more foreign currency than it is earning

Answer

A country has a strong economy

Question 55

Which of the following is a potential benefit associated with a current account surplus?

Accepted Answer

Appreciation of the currency

Answer

Lower inflation

Answer

Depreciation of the currency

Answer

Reduced economic growth

Question 56

How is the current account related to the balance of payments?

Accepted Answer

The current account is a sub-component of the balance of payments

Answer

The current account and the balance of payments are unrelated

Answer

The balance of payments is a sub-component of the current account