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HomeHomework HelpeconomicsCurrent Account Balance

Current Account Balance

The current account balance is a key component of a country's balance of payments, reflecting net exports and imports of goods and services. In this context, an increase in imports can lead to a decrease in net exports, resulting in a current account surplus when exports exceed imports. Understanding these dynamics is crucial for assessing a country's economic health and its international trade relationships.

intermediate
2 hours
Economics
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Overview

The current account balance is a vital economic indicator that reflects a country's financial transactions with the rest of the world. It includes trade in goods and services, net income from abroad, and transfer payments. Understanding the dynamics of the current account helps in analyzing a nation...

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Key Terms

Current Account
A component of a country's balance of payments that records trade in goods and services.

Example: A country with a current account surplus exports more than it imports.

Trade Balance
The difference between a country's exports and imports.

Example: A trade surplus occurs when exports exceed imports.

Net Income
Income earned by residents from investments abroad minus income earned by foreign investors in the country.

Example: Dividends from foreign stocks contribute to net income.

Transfer Payments
Payments made without any exchange of goods or services, such as remittances.

Example: Workers sending money back home to their families.

Surplus
A situation where income exceeds expenditures.

Example: A country has a surplus when it exports more than it imports.

Deficit
A situation where expenditures exceed income.

Example: A country runs a deficit when it imports more than it exports.

Related Topics

Balance of Payments
A comprehensive overview of all economic transactions, including the current account.
intermediate
Exchange Rates
How currency values are determined and their impact on trade balances.
intermediate
International Trade
The exchange of goods and services across international borders and its effects.
intermediate

Key Concepts

Trade BalanceNet IncomeTransfer PaymentsCapital Account