In balance of payments accounting, which account balance is equal to capital flows from the rest of the world minus capital flows to the rest of the world?

Introduction / Context:
Macroeconomics and international economics frequently test knowledge of the balance of payments accounts. Learners must distinguish between the current account, the capital account, and related balances. The question here asks specifically about the account that records capital flows between a country and the rest of the world. Recognising the correct account is important for understanding foreign investment, borrowing, and financial integration.

Given Data / Assumptions:

• We are considering a standard balance of payments framework.
• Capital flows from the rest of the world refer to inflows of capital into the domestic economy.
• Capital flows to the rest of the world refer to outflows or investments made abroad.
• We assume textbook definitions of current and capital account balances.

Concept / Approach:
The balance of payments is divided broadly into the current account and the capital account. The current account records trade in goods and services, income, and current transfers. The capital and financial account records capital inflows and outflows such as foreign direct investment, portfolio investment, and borrowing or lending. Therefore, when the question mentions capital flows to and from the rest of the world, it is directly describing the capital account balance, which is the net of such flows.

Step-by-Step Solution:
1. Identify the key phrase: capital flows from and to the rest of the world.2. Recall that the current account is focused on exports, imports, income, and current transfers, not capital movements.3. Note that capital movements such as foreign investment, loans, and acquisition of financial assets are recorded in the capital and financial account.4. Understand that capital account balance equals capital inflows minus capital outflows over a period.5. Therefore, the balance described in the question corresponds to the capital account balance.

Verification / Alternative check:
To verify, imagine a country that receives foreign direct investment of 100 units and makes outward investment of 40 units. The net capital inflow is 60 units. This 60 unit surplus is recorded as part of the capital account balance, not the current account. If we were computing the current account, we would look at exports minus imports and similar items. This simple example confirms that the correct answer involves the capital account, not current or savings accounts.

Why Other Options Are Wrong:
Option A: The current account balance measures net exports of goods and services, net income, and current transfers. It is not defined directly in terms of capital flows.
Option B: Savings account balance is a term from personal banking and has nothing to do with national level balance of payments accounting.
Option D: Asset account balance is not a standard label in balance of payments classification and is too vague for this context.
Option E: Official reserves account balance refers to changes in foreign exchange reserves held by the central bank, which is a narrower concept than total capital flows by private and public sectors together.

Common Pitfalls:
Students sometimes confuse capital account with current account because both appear in the overall balance of payments. A useful rule is that anything involving buying and selling of real and financial assets across borders is part of the capital and financial account, while trade in goods and services and income flows are part of the current account. Also, do not mix up individual banking terms like savings accounts with macroeconomic accounting categories.

Final Answer:
The balance that equals capital flows from the rest of the world minus capital flows to the rest of the world is the capital account balance.