Q.

1 BASIC BALANCE
The concept of "Basic Balance" in macroeconomics refers to one of the components of a country's
balance of payments. The balance of payments is a systematic record of all economic transactions
between residents of one country and the rest of the world over a specific period. It is divided into
several components, and the Basic Balance is one of them.

The balance of payments is typically divided into three main components:

1. Current Account: This includes the trade balance (exports and imports of goods and
services), income from abroad, and unilateral transfers (gifts and grants).

2. Capital Account: This records capital transactions, such as the purchase and sale of financial
assets.

3. Financial Account: This accounts for changes in ownership of financial assets.

The Basic Balance focuses on the Current Account and includes the trade balance (exports minus
imports) and net income from abroad. It is a narrower measure than the overall Current Account,
which also includes unilateral transfers. The Basic Balance is useful for understanding the
sustainability of a country's current economic situation because it focuses on the core economic
activities involving goods, services, and income.

The formula for the Basic Balance is as follows:

Basic Balance=Trade Balance+Net Income from AbroadBasic Balance=Trade Balance+Net Income fro
m Abroad

 Trade Balance: It represents the difference between a country's exports and imports of
goods and services. A positive trade balance (exports > imports) contributes to a surplus,
while a negative trade balance (imports > exports) contributes to a deficit.

 Net Income from Abroad: It includes earnings from investments and other income
generated by residents of a country from their assets abroad minus the income earned by
foreign investors within the country.