Australian Year 10 Economics Practice Test 2026 - Free Economics Exam Questions and Study Guide

When a country runs a current account deficit, the payments for its excess spending abroad must come from somewhere. In the balance of payments, the current account plus the capital/financial account must balance (ignoring small statistical discrepancies). So financing that deficit happens through capital inflows: foreigners buy domestic assets or lend money, bringing in money from abroad. Those inflows show up as a surplus in the capital/financial account. In short, a current account deficit is typically financed by a capital/financial account surplus, keeping the overall balance in equilibrium.