Question
Download Solution PDFThe items on the capital account of Balance of Payments are:
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is Flow variables
Key Points
- BOP is a flow concept as it is measured over (during) a period of time.
- Since BOP is measured over a time interval, it can be said that they have an element of time attached to them. Similarly, current account is also a flow variable.
Important Points
- The term ‘balance of payments is the’ sum or aggregate of its current account and capital account.
- Current account and capital account will always move in the opposite directions.
- A deficit on current account will always meet with a matching surplus on capital account, and conversely a surplus on current account will match with a deficit on current account. And in the ultimate analysis, an economy’s BOP will be in balance i.e., there will be no deficits and surpluses in aggregate.
- The capital account also includes the flow of taxes, purchase and sale of fixed assets etc., by migrants moving out/into a different country. The deficit or surplus in the current account is managed through the finance from the capital account and vice versa.
Last updated on Jun 6, 2025
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