Economics (7th Edition) (What's New in Economics)
Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 29, Problem 29.1.1RQ
To determine

The relationship between the current account, financial account and balance of payment.

Expert Solution & Answer
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Explanation of Solution

The financial account and current account are the components of the balance of the payment. The sum of the current account and financial account is equal to the balance of the payment, which should be zero to each other that is, if the current account has a deficit balance, the financial account should have a surplus balance.

Economics Concept Introduction

Concept Introduction:

Current account: The current account is the entry of all the transactions of a country net export, net income on investment and net transfers as a part of the balance of payment.

Financial account: The financial account is the book keeping entry of all the transactions such as the purchases of the goods and services from the foreign country.

Balance of payment:  The balance of the payment is the book keeping entry of the trade between two countries goods and services.

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