Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It will always lead to a deficit in the current account.
B
It may improve the current account balance if foreign investments increase.
C
It has no effect on the current account balance.
D
It will decrease the current account balance regardless of foreign investments.
Understanding the Answer
Let's break down why this is correct
Answer
When a country receives more net transfers, such as foreign aid or remittances, it can improve its current account balance. This is because net transfers add to the country’s income, which helps offset any deficits from trade in goods and services. For example, if a country receives a large amount of money from citizens working abroad, this money counts as an inflow and boosts the current account. Additionally, if these transfers are used for investments, like building infrastructure, they can attract further foreign investments, creating a cycle that strengthens the economy. Overall, increased net transfers can help balance out the current account by providing necessary funds and encouraging growth.
Detailed Explanation
When net transfers increase, it means more money is coming into the country. Other options are incorrect because Some might think that more money always leads to a deficit; It's a common belief that transfers don't matter.
Key Concepts
Current account
net transfers
foreign investments
Topic
Current Account Balance Dynamics
Difficulty
hard level question
Cognitive Level
understand
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