(a) Define Balance of Payments (BoP) Account. (b) Differentiate between Current Account and Capital Account of Balance of Payments (BoP).

Question

Accepted Answer

(a) **Balance of Payments (BoP) Account:** An accounting statement that provides a systematic record of all economic transactions between residents of a country and the rest of the world in a given period of time.

(b) **Difference between Current Account and Capital Account:**

| Basis | Current Account | Capital Account |
|-------|-----------------|------------------|
| **Influence** | Brings change in current level of income | Brings change in capital stock |
| **Concept** | Flow concept | Stock concept |
| **Components** | Visible + Invisible + Unilateral transfers | Borrowings + Investments + Change in reserves |
| **Transactions** | Goods, services, transfers | Assets, liabilities, financial transfers |
| **Impact** | Affects income, output, employment | Does not directly affect income/output |

**Key Relationship:** Current Account + Capital Account = 0 (in accounting sense)
- CAD is financed by Capital Account surplus
- CAS is matched by Capital Account deficit