Given below are two statements, one labeled as Assertion (A) and the other as Reason (R): Assertion (A): When the payments made by a country exceeds its receipts from the trade of goods, services, transfer, and net income are called Current Account Deficit (CAD). Reason (R): Current Account Deficit (CAD) occurs when a country exports more goods, services, and capital. Choose the correct answer from the codes given below:
Given below are two statements, one labeled as Assertion (A) and the other as Reason (R): Assertion (A): When the payments made by a country exceeds its receipts from the trade of goods, services, transfer, and net income are called Current Account Deficit (CAD). Reason (R): Current Account Deficit (CAD) occurs when a country exports more goods, services, and capital. Choose the correct answer from the codes given below: Correct Answer A is true but R is false
The correct answer is A is true but R is false.
- R is false because the Current Account Deficit occurs if the value of the goods and services imported exceeds the value of those exported.
- Current Account deals with current, ongoing, short-term transactions like trade in goods, services (invisible), etc.
- Current Account = Trade gap + Net current transfers + Net income abroad
- Current Account Deficit and Fiscal Deficit are known as Twin Deficit.
Additional Information
- Balance of Payment (BoP) Account:
- It is a systematic record of all economic transactions of a country with the residents of other countries in a financial year.
- There are two components of BoP:
- Current Account:
- There are 4 components of the Current Account:
- Goods
- Services (invisible)
- Income – investment income
- Current unilateral transfers – donations, gifts, grants, remittances
- There are 4 components of the Current Account:
- Capital Account:
- It also has broadly 4 components
- Foreign Direct Investment (FDI)
- Foreign Portfolio Investment (FPI)
- External Borrowings such as ECB
- Reserve Account with the Central Bank.
- It also has broadly 4 components
- Current Account:
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Feb 20, 2025