Economic Awareness - Sectors of Indian Economy
Which of the following best describes the difference between the Current Account and the Capital Account in the Balance of Payments?
Which of the following best describes the difference between the Current Account and the Capital Account in the Balance of Payments?
medium Q14 of 15
Step-by-Step Solution
Step 1: Understand definitions
The Current Account records trade in goods and services, income flows, and current transfers. The Capital Account records capital transfers and transactions involving non-produced, non-financial assets.Step 2: Evaluate options
Current Account records trade and income flows; Capital Account records capital transfers and acquisition of non-produced assets correctly states the distinction. Current Account records foreign investments; Capital Account records exports and imports reverses the roles. Current Account records only goods trade; Capital Account records services trade incorrectly limits Current Account to goods only. Current Account records government borrowing; Capital Account records private sector borrowing confuses borrowing with account classifications.Final Answer:
Current Account records trade and income flows; Capital Account records capital transfers and acquisition of non-produced assets → Option BQuick Check:
Current Account = trade/income; Capital Account = capital transfers ✅
Quick Trick: Mnemonic: Current = Consumption & Income; Capital = Assets & Transfers.
Common Mistakes:
MISTAKES- Mixing up trade flows with capital transfers.
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