Question : Which of the following will increase a country's current account deficit?
Option 1: An increase in exports of goods and services
Option 2: A decrease in imports of goods and services
Option 3: An increase in income from foreign investments
Option 4: An increase in transfer payments to foreign countries
Correct Answer: An increase in transfer payments to foreign countries
Solution : The correct answer is d) An increase in transfer payments to foreign countries
An increase in transfer payments to foreign countries will increase a country's current account deficit. The current account deficit represents the situation when a country's total imports of goods, services, income, and transfers exceed its total exports. Transfer payments include items such as foreign aid, remittances, and unilateral transfers.
