Define the current account in the balance of payments and list all its major components.
Answer
The current account records the net value of exports and imports of goods and services, net primary income, and net secondary income; its components are (i) trade balance (exports‑imports of goods and services), (ii) net primary income, and (iii) net secondary income (transfers).
Step-by-step solution
- Identify that the balance of payments is divided into current and capital accounts.
- State that the current account records transactions that involve goods, services, income and transfers.
- List the three major components: trade balance, net primary income, and net secondary income.
- Explain each component briefly: trade balance = exports‑imports of goods & services; primary income = earnings on investments and wages from abroad; secondary income = unilateral transfers such as remittances.
- Combine the definition and component list into a complete answer.
Common mistake: Confusing secondary income with capital transfers or omitting net primary income.
Concept tested: Current account components
Published · How this solution was prepared and checked
← All Open Economy Macroeconomics questions