Current Account Deficit

A current account deficit tends to reflect… a weak domestic economy and low interest rates. a strong domestic economy and low interest rates. a strong domestic economy and high interest rates. How does a current account deficit equal a strong economy and high interest rates?

Not sure if this is entirely right, but a current account deficit means higher domestic consumption compared to savings which would increase GDP and also increase interest rates as a result of either decreased savings or higher government deficits.

The equation is:

current account = private savings + government savings - investment

Which means if a country consumes more = less savings, the current account has also to decrease. To say it in other words , a country with low interest rates tends to have a negative current account.

To answer your question:

high interest rates and a strong economy don’t really belong together. But if it would happen:

high interest rates = more private savings (opportunity costs to consume are higher) and less investment (opportunity costs for a loan are higher, higher interest expenses)

Broadly speaking, the right side of the equation decreases when interest rates are hight and if it does so, the current account (left side),has to decrease as well.