Question : Which of the following is not a component of the current account in the balance of payments?
Option 1: Goods and services
Option 2: Income from abroad
Option 3: Transfer payments
Option 4: Capital flows
Correct Answer: Capital flows
Solution : The correct answer is d) Capital flows.
The current account in the balance of payments records the transactions related to goods, services, income, and unilateral transfers between a country and the rest of the world. It represents the flow of funds resulting from international trade and other economic transactions.
Capital flows are not a component of the current account. Capital flows are recorded in the capital account of the balance of payments. The capital account captures transactions related to capital transfers, such as loans, investments, and acquisitions of assets between residents and non-residents.
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