Question : Assertion: The balance of payments is a record of all financial transactions between a country and the rest of the world.
Reason: The balance of payments includes transactions related to goods, services, income, and transfers.
Option 1: Both Assertion and Reason are true and correct explanation
Option 2: Both Assertion and Reason are true and incorrect explanation
Option 3: Assertion is true but Reason is false
Option 4: Assertion is false but Reason is true
Correct Answer: Both Assertion and Reason are true and correct explanation
Solution : The correct answer is (a) Both the Assertion and the Reason are true and provide a correct explanation.
The Assertion states that the balance of payments is a record of all financial transactions between a country and the rest of the world, which is true. The balance of payments is a systematic record of all economic transactions undertaken by residents of a country with the rest of the world during a specific period. It captures transactions related to goods, services, income, and transfers.
The Reason states that the balance of payments includes transactions related to goods, services, income, and transfers, which is also true. The balance of payments is divided into three main components: the current account, the capital account, and the financial account. The current account captures transactions related to goods, services, income, and current transfers.
Therefore, Both Assertion and Reason are true and provide a correct explanation.
Question : Assertion: Balance of payments includes both visible and invisible items.
Reason: Visible items refer to physical goods, while invisible items include services, transfers, and investments.
Question : Assertion: An increase in import payments leads to an unfavorable balance of payments. Reason: Higher import payments contribute to a deficit in the current account.
Question : Assertion: Trade barriers can affect the balance of payments negatively.
Reason: Trade barriers restrict imports and exports, leading to imbalances in the current account.
Question : Assertion: An increase in foreign borrowing can result in an unfavorable balance of payments.
Reason: Foreign borrowing increases the outflow of funds and can contribute to a deficit in the current account.
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