India’s current account consists of a trade balance in goods of +3% of GDP, a trade balance in services of -1% of GDP, a net income balance of +2% of GDP and a net transfer balance of -0.5% of GDP. What is the current account balance as a percentage of GDP?
Answer
The current account balance is 3.5% of GDP.
The correct answer is The current account balance is 3.5% of GDP. — The final sum is +3.5%, which is the current account balance as a percentage of GDP.
Step-by-step solution
- Compute the contribution of each component to the current account.
- Add the trade balance in goods (+3%) and the trade balance in services (-1%).
- Add the net income balance (+2%) to the sum from the previous step.
- Add the net transfer balance (-0.5%) to the total obtained so far.
- The final sum is +3.5%, which is the current account balance as a percentage of GDP.
Common mistake: Adding the sign of net transfers incorrectly
Concept tested: Components of current account
Published · How this solution was prepared and checked
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