Question

The fundamental Balance of Payments identity is expressed as:

Options

• \[ \text{Current Account} + \text{Capital Account} = \text{Trade Balance} \]

• \[ \text{Current Account} + \text{Capital Account} = 0 \]

• \[ \text{Current Account} \times \text{Capital Account} = 0 \]

• \[ \text{Current Account} - \text{Capital Account} = 0 \]

Answer 1

The BoP always balances, and this is expressed as the identity Current Account + Capital Account = 0. Any imbalance in one account is offset in the other, so the sum of the two accounts equals zero.