Question

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

Answer 1

Current account deficit shows that a country bis importing more than exporting due to which developed countries face problem of deficit as emerging economies often gain surplus.

So when a country uses external debts to finance its own investment whose returns are much higher as compared to interest of the debts this impact the external wealth of the nation as when suppose company is not able to cover its debts it may be declared insolvent.

The current account deficit show that thete economy is not able to competite or is becoming uncompetitve and the exchange rate is becoming relatively higher .