Suppose That You Had to Explain to a Person in the Street

question 24

Essay

Suppose that you had to explain to a person in the street (who is not an economist) why a current account deficit must be accompanied by a financial or capital account surplus. What would you say?

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Definitions:

Return On Investment

A financial metric used to evaluate the profitability of an investment, calculated as the return divided by the cost of the investment.

Residual Income

The income that remains after all costs and expenses, including the cost of capital, have been subtracted from net income.

Average Invested Capital

The average amount of money invested in a company over a certain period, used to evaluate the company's financial performance.

Investment Turnover

An indicator of how effectively an organization is using its invested capital to produce income.