Question #379

Only one of the following propositions is possible (with all balances expressed as a per cent of GDP)

• A nation can run a current account deficit accompanied by a government sector surplus of equal proportion to GDP, while the private domestic sector is spending less than they are earning.
• A nation can run a current account deficit accompanied by a government sector surplus of equal proportion to GDP, while the private domestic sector is spending more than they are earning.
• A nation can run a current account deficit with a government sector surplus that is larger, while the private domestic sector is spending less than they are earning.
• None of the above are possible as they all defy the sectoral balances accounting identity.

Answer #2467

Answer: A nation can run a current account deficit accompanied by a government sector surplus of equal proportion to GDP, while the private domestic sector is spending more than they are earning.

Explanation

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