Consider the following:
1. Job creation in export sector
2. A higher share of output being exported than consumed domestically
3. Accumulation of foreign assets.

Which of the above is/are the impact(s) of a current account surplus?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Question

Consider the following:
1. Job creation in export sector
2. A higher share of output being exported than consumed domestically
3. Accumulation of foreign assets.

Which of the above is/are the impact(s) of a current account surplus?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

ONLiNE UPSC · Accepted Answer

Item 1 is correct: A current account surplus means an economy is exporting a greater value of goods and services than it is importing. A country with a current account surplus will have a deficit on the financial/capital account. i.e. a country with a current account surplus will have surplus foreign exchange it can use to invest in other countries. A surplus often indicates strong export performance, which can boost employment in industries involved in producing export goods.

Item 2 is correct: A current account surplus suggests that a significant portion of the country's production is being sent abroad rather than being consumed domestically.

Item 3 is correct: Another element of a current account surplus is that the country will be accumulating foreign assets. With a large current account surplus (and inflow of foreign currency), China has been purchasing assets around the world &ndash; including US bonds and investment in Africa. In the first half of the Twentieth Century, the US was the dominant manufacturing nation. It ran large current account surpluses; during this period it was a net exporter of capital. US firms and governments are investing abroad and accumulating foreign assets which can earn profit, dividends and rent.

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Current Account Surplus

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M Question 1	⏱ 0
Consider the following: 1. Job creation in export sector 2. A higher share of output being exported than consumed domestically 3. Accumulation of foreign assets. Which of the above is/are the impact(s) of a current account surplus? (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3