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 in an open economy includes income from foreign investments. This includes the income earned by residents of the economy from abroad, such as dividends, interest, and profits. It reflects the net flows of income from foreign assets owned by residents. Hence, the correct answer is (a).