Question : Assertion: A decrease in tourism receipts can lead to an unfavorable balance of payments.
Reason: Tourism receipts are considered as invisible exports and contribute to the current account surplus.
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 a decrease in tourism receipts can lead to an unfavorable balance of payments, which is true. Tourism receipts represent the inflow of foreign currency earned from visitors to the country. A decrease in tourism receipts means a reduction in the inflow of foreign currency, which can have a negative impact on the current account balance.
The Reason states that tourism receipts are considered as invisible exports and contribute to the current account surplus, which is also true. Tourism is often categorized as an invisible export because it involves the provision of services to foreign visitors. The earnings from tourism contribute to the current account surplus by increasing the inflow of funds from abroad.
Therefore, Both Assertion and Reason are true and provide a correct explanation.
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: An increase in remittances from abroad improves the balance of payments.
Reason: Remittances are considered as invisible exports, contributing to a surplus 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.
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: A decrease in foreign aid can contribute to a deficit in the current account.
Reason: Foreign aid inflows are considered as transfers and contribute to the current account surplus.
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