Question

A country's current account balance refers to a broad measure of the balance of trade that includes:

1) merchandise, services, and foreign capital investments.
2) goods, foreign capital investments, exported domestic services.
3) goods and services, international flows of income, and foreign aid.
4) merchandise, foreign aid and imported domestic services.

Answer 1

The current account balance of a country includes trade in goods and services, international flows of income, and foreign aid, which makes option 3 the correct definition.

Step-by-step explanation:

A country's current account balance is a broader measure of its balance of trade than the trade balance alone. The current account includes the trade in goods and services, as well as the international flows of income and unilateral transfers such as foreign aid. It captures not only the merchandise trade balance, which focuses solely on goods, but also services, which can be a significant portion of high-income economies' production.

Financial capital, which represents the flows of money internationally that facilitate trade and investment, is also essential.

When considering the options provided, option 3) 'goods and services, international flows of income, and foreign aid' most accurately defines elements included in a country's current account balance.