CFA Level I · CFA Level I Exam · International Trade
A country has a government budget deficit of 5% of GDP, private saving of 18% of GDP, and private investment of 20% of GDP. Using the saving-investment identity, the current account balance as a percentage of GDP is closest to:
The current account balance is closest to -7% of GDP. The private sector balance is 18% minus 20%, which is -2%, and the government balance is -5%. Adding them gives -7%, so the country must borrow abroad by that amount.
- A-7%Correct
- B-2%
- C+3%
Explanation
Current account = (S_private − I) + (T − G). Private balance = 18 − 20 = −2%. Government balance = −5%. Sum = −7%. The −2% option ignores the government deficit, and +3% wrongly adds the deficit.
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