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What is the difference between a current account deficit and a capital account deficit?

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What is the difference between a current account deficit and a capital account deficit?
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    1. Distinguishing between a current account deficit and a capital account deficit boils down to the nature of transactions: Current Account Deficit: Think of it as a ledger for day-to-day activities. A current account deficit occurs when a country imports more goods and services than it exports, creatiRead more

      Distinguishing between a current account deficit and a capital account deficit boils down to the nature of transactions:

      1. Current Account Deficit:
        • Think of it as a ledger for day-to-day activities. A current account deficit occurs when a country imports more goods and services than it exports, creating a shortfall in the balance of trade.
      2. Capital Account Deficit:
        • Picture this as the long-term investment ledger. A capital account deficit arises when a country’s investments abroad exceed foreign investments in the country, indicating a net outflow of capital.

      In essence, the current account focuses on short-term transactions like trade, while the capital account looks at long-term investments and financial flows.

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