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.
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 Assertion and Reason are true and provide a correct explanation.
The Assertion states that an increase in remittances from abroad improves the balance of payments, which is true. Remittances refer to the money sent by individuals working abroad to their home countries. When there is an increase in remittances, it represents an inflow of foreign currency into the recipient country. This inflow contributes to the current account, specifically under the category of invisible exports or current transfers, and can help improve the balance of payments.
The Reason states that remittances are considered as invisible exports, contributing to a surplus in the current account, which is also true. Invisible exports refer to non-physical items, such as services, transfers, and investments, which contribute to the current account. Remittances fall under the category of transfers, as they involve the transfer of funds from one country to another. An increase in remittances can lead to a surplus in the current account and contribute to a positive balance of payments.
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.
Question : Assertion: An increase in the outflow of dividends to foreign investors reduces the current account balance.
Reason: Dividend outflows are considered as invisible imports and contribute to the current account deficit.
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 export earnings leads to a favorable balance of payments.
Reason: Higher export earnings contribute to a surplus in the current account.
Question : Assertion: A surplus in the current account leads to an increase in foreign exchange reserves.
Reason: Surplus in the current account implies that the inflow of foreign exchange exceeds the outflow.
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