Question

How would a current account deficit impact the external wealth of a nation?

Answer 1

Answer - The current account deficits will not affect the external wealth of the nations . The deficit is not a negative factor or the cause of very much concern. It does not affect the assets or liabilities of the economy. The current account deficit takes place when the economy is importing more and exporting less. This means the currency is over valued. In the case of the flexible exchange rates , this will automatically get adjusted by the depreciation in the exchange rates thus bringing the equilibrium. Thus the deficit is not a concern for the wealth.