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.
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 trade barriers can affect the balance of payments negatively, which is true. Trade barriers, such as tariffs, quotas, and trade restrictions, can limit the flow of goods and services between countries. These barriers can hinder imports and exports, leading to imbalances in the current account. Restricting imports can reduce the outflow of foreign currency, while limiting exports can decrease the inflow of foreign currency, both affecting the balance of payments.
The Reason states that trade barriers restrict imports and exports, leading to imbalances in the current account, which is also true. Trade barriers impose restrictions on the free flow of goods and services across borders, which can disrupt the balance between imports and exports. By restricting imports, a country may experience a surplus in the current account, while limiting exports can result in a deficit. These imbalances impact the overall balance of payments.
Both the Assertion and the Reason align and provide a correct explanation for how trade barriers can affect the balance of payments negatively.
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: Fluctuations in foreign exchange rates can impact a country's balance of trade.
Reason: A change in the exchange rate affects the competitiveness of a country's exports and imports.
Option 1:
Both Assertion and Reason are true and correct explanation
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: 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.
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