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1. What is current account balance? What is the link between currentaccountbalancenational savingsandInvestments?Arecurrentaccount deficits always harmful? Analyze Indias current accountdata over the last 5 years?A. What is current account balance?Definition: The current account balance is the difference between acountry's savings and its investment. "[f the current account balance is!"ositive# it measures the "ortion of a country's saving invested abroad$ ifnegative# the "ortion of domestic investment financed by foreigners'savings."The current account balance is defined by the sum of the value of im"ortsof goods and services "lus net returns on investments abroad# minus thevalueof e%"orts of goods andservices# whereall theseelements aremeasured in the domestic currency.&. What isthelin'betweencurrent account balancenational savingsandnvestments?(irstly# it is worth remembering that in a closed economy# we assume thatsaving ) investment. *+),. (or a firm to invest# it needs savings to beable to finance the investment.-conomists have noted that if domestic saving are lower than domesticinvestment# we will see a current account deficit. Why?&efore# we loo' at a more mathematical a""roach# it is hel"ful to thin' ofa country which e%"erienced a ra"id fall in savings# but investment levelsstay the same. A fall in savings means "eo"le are s"ending more *higherconsum"tion,therefore# thiswouldtendtosuc'inim"ortsaswebuygoods and services from abroad.&ut# also# if domestic savings fall . how will the domestic investment befinanced?Theinvestment must befinancedfromca"ital inflows fromabroad.A country li'e /a"an has had a glut of saving over investment. This savingtended togoabroad loo'ing for more "rofitable investment. Therefore#/a"an has had a deficit on ca"ital flows# and a corres"onding sur"lus onthe current account.The0+bycontrast hasoftenhadalevel of investment greater thansavings. This has been financed by ca"ital inflows and a current accountdeficit.+avings nvestment and 1urrent Account 234 *2ross 3ational 4roduct, ) 2ross Domestic 4roduct *2D4 5r 6, 7 3etincome from abroad *8, 234 ) 6783et income from abroad can be negative if foreigners own more assets inthe 09# .income fromthese assets will be sent abroad leading tonegative net income from abroad.-:uilibrium in 3ational ncome .2D4 *6, involves this formula 2D4 *6, ) 17727 *;