Question : A current account surplus can be used to finance a ______________in the capital account.
Option 1: surplus
Option 2: deficit
Option 3: balance
Option 4: trade
Correct Answer: deficit
Solution : The correct answer is (b) deficit
A current account surplus means that a country is earning more from its exports of goods, services, and income than it is spending on imports and transfers. When a country has a current account surplus, it indicates that it has excess savings that can be used to finance investments or lend to other countries. This surplus can be utilized to finance a deficit in the capital account, which includes transactions related to capital transfers, financial investments, and other capital flows. Therefore, a current account surplus can help offset a deficit in the capital account and maintain overall balance in the balance of payments.
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