What does the "current account" measure?

The "current account" is a key component of a country's balance of payments and encompasses a wide range of economic transactions. It measures trade in goods and services, which includes exports and imports, as well as investment earnings like dividends and interest that flow from abroad, and transfer payments, which refer to one-way transactions such as remittances and aid. By capturing these elements, the current account provides a comprehensive overview of a country’s economic transactions with the rest of the world during a specific period.

This broad scope of measurement distinguishes the current account from other accounts in the balance of payments. For instance, focusing solely on financial transactions involving businesses or government expenditures does not capture the complete picture of international economic interactions that the current account provides. Similarly, limiting measurement strictly to trade balances of merchandise overlooks significant contributions from services and investment earnings. Thus, the correct choice encapsulates the comprehensive nature of the current account by including trade of goods and services, investment earnings, and transfer payments.