Question

What is the significant difference between the current account and the capital account, when the sum of the two accounts must equal 0? Less-Developed Countries (LDCs) are caught in a vicious circle of poverty. For output to increase, they must build up capital. To build up capital, they must save and consume less than what they are producing. However, because they are poor, they have little or no extra output available for savings as it must go toward feeding and clothing the current generation. Thus, they are destined to remain poor forever. How should developed-countries and international institutions assist LDCs to develop and are there unintended consequences?

Answer 1

An account which records the export and import of merchandise and unilateral transfers done during the year by a nation are known as Current Account. An account which records the trading of foreign assets and liabilities during the year by a country is known as Capital Account. Current account records the trading in goods and services in the current period. Capital Account records the movement of capital in and out the economy. current Account is mainly concerned with receipts and payment of cash and non-capital items. Conversely, Capital Account has thoroughly considered the sources and application of capital. Less developed nations today are facing crisis from multiple factors, due to global economic crisis demand and resource have come decline and selling of raw materials is no longer available for less developed countries. Further, investments into LDC’s are not coming because of multiple factors