Question

The current account balance in an open economy:

• A. Always includes the balance on investment income
• B. Never includes the balance on investment income
• C. Includes the balance on investment income and flows of investment
• D. Includes flows of investment but not the balance on investment income

Hint:

Understand the components of current account.

Answer 1

The Correct Option is A

The current account balance of an open economy incorporates income from foreign investments. This specifically covers earnings like dividends, interest, and profits received by residents from overseas. Essentially, it represents the net income generated by foreign assets held by residents. Therefore, option (a) is correct.