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.
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 correct explanation.
The Assertion states that the balance of payments includes both visible and invisible items, which is true. The balance of payments is a record of all economic transactions between residents of one country and the rest of the world over a specific period. It is divided into two main components: the current account and the capital account.
The Reason states that visible items refer to physical goods, while invisible items include services, transfers, and investments, which is also true. Visible items in the balance of payments refer to tangible goods that are traded between countries, such as merchandise exports and imports. Invisible items, on the other hand, include services (like tourism and transportation), transfers (like foreign aid and remittances), and investment income (like dividends and interest).
Therefore, both the Assertion and Reason are true, and the Reason provides a correct explanation for the Assertion.
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.
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 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 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.
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