In balance of payments accounting, which of the following balances 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 often appear in competitive exams through questions on the balance of payments. Understanding the difference between the current account and the capital account is crucial. This question asks you to match a simple definition of net capital flows with the correct account in the balance of payments framework.

Given Data / Assumptions:

• The question refers to capital flows from and to the rest of the world.
• The phrase capital flows implies cross border movement of financial capital.
• Options include current account, savings account, capital account, and asset account balances.
• We assume a basic textbook model of the balance of payments.

Concept / Approach:
The balance of payments is divided mainly into the current account and the capital financial account. The current account records trade in goods and services, income, and transfers. The capital account in many simplified treatments includes capital flows, such as foreign direct investment and portfolio investment. Net capital inflow is defined as capital flows from the rest of the world minus capital flows to the rest of the world. Therefore, this net capital flow concept is associated with the capital account balance rather than the current account.

Step-by-Step Solution:
Step 1: Identify that the phrase capital flows refers to cross border movement of financial capital. Step 2: Recall that the current account mainly tracks trade in goods and services and income flows, not capital movements. Step 3: Remember that the capital account or capital and financial account records investment flows and borrowing or lending across borders. Step 4: Note that net capital inflow is mathematically defined as capital flows from abroad minus capital flows to abroad. Step 5: Match this definition with capital account balance and select it as the correct answer.

Verification / Alternative check:
Standard macroeconomics textbooks describe net capital inflow as equal to the capital account balance. In a small open economy model, this is often written as KI equals CF from rest of world minus CF to rest of world. Many exam guides repeat this definition in the chapter on balance of payments. Because the current account deals with exports, imports, and income, and not with net capital flows directly, the association with capital account is confirmed.

Why Other Options Are Wrong:
Current account balance: This measures the difference between exports and imports of goods and services plus net income and transfers, not net capital flows.
Savings account balance: A savings account is a type of bank deposit for individuals and does not refer to macroeconomic capital flows at all.
Asset account balance: This is not a standard label used in basic balance of payments classification and therefore does not correctly describe net capital flows.

Common Pitfalls:
A typical mistake is to confuse current account and capital account because both appear in the balance of payments table. Another trap is to overlook that the key phrase in the question is capital flows. Remembering that current account equals trade and income, while capital account equals investment and borrowing or lending, will help you quickly match definitions in similar questions.

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