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Consider the following statements and identify the right ones.
i. A double entry system of record of all economic transactions between the residents of a country and rest of the world is called balance of trade
ii. All transactions related to goods, services or income are classified as capital account.
i. A double entry system of record of all economic transactions between the residents of a country and rest of the world is called balance of trade
ii. All transactions related to goods, services or income are classified as capital account.
- a)i only
- b)ii only
- c)both
- d)none
Correct answer is option 'D'. Can you explain this answer?
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Consider the following statements and identify the right ones.i. A dou...
A double entry system of record of all economic transactions between the residents of a country and rest of the world is called balance of payments. All transactions related to goods, services or income are classified as current account.
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Consider the following statements and identify the right ones.i. A dou...
Balance of Trade and Capital Account in International Economics
Balance of Trade:
- The balance of trade is a record of all economic transactions between the residents of a country and the rest of the world.
- It specifically refers to the difference between the value of a country's exports and the value of its imports over a certain period of time.
- The balance of trade is a component of the broader current account, which also includes trade in services, income from investments, and unilateral transfers.
Capital Account:
- The capital account, on the other hand, records transactions related to the purchase and sale of assets between residents and non-residents.
- This includes transfers of financial assets such as stocks, bonds, and real estate, as well as non-financial assets like patents and trademarks.
- It also includes capital transfers, such as debt forgiveness and migrants' transfers of funds.
Difference between Balance of Trade and Capital Account:
- The balance of trade focuses specifically on transactions related to the exchange of goods and services between countries.
- It is part of the current account, which also includes trade in services, income from investments, and unilateral transfers.
- The capital account, on the other hand, records transactions related to the purchase and sale of assets between residents and non-residents.
- It includes both financial and non-financial assets, as well as capital transfers.
Correct statements:
i. A double entry system of record of all economic transactions between the residents of a country and rest of the world is called balance of trade. This statement is incorrect because the balance of trade specifically refers to the difference between the value of a country's exports and the value of its imports, not all economic transactions.
ii. All transactions related to goods, services, or income are classified as the capital account. This statement is incorrect as well. While the capital account does include transactions related to the purchase and sale of assets, it does not include transactions related to goods, services, or income. Those transactions are recorded in the current account.
Therefore, the correct answer is option 'D' - none of the statements is right.
Balance of Trade:
- The balance of trade is a record of all economic transactions between the residents of a country and the rest of the world.
- It specifically refers to the difference between the value of a country's exports and the value of its imports over a certain period of time.
- The balance of trade is a component of the broader current account, which also includes trade in services, income from investments, and unilateral transfers.
Capital Account:
- The capital account, on the other hand, records transactions related to the purchase and sale of assets between residents and non-residents.
- This includes transfers of financial assets such as stocks, bonds, and real estate, as well as non-financial assets like patents and trademarks.
- It also includes capital transfers, such as debt forgiveness and migrants' transfers of funds.
Difference between Balance of Trade and Capital Account:
- The balance of trade focuses specifically on transactions related to the exchange of goods and services between countries.
- It is part of the current account, which also includes trade in services, income from investments, and unilateral transfers.
- The capital account, on the other hand, records transactions related to the purchase and sale of assets between residents and non-residents.
- It includes both financial and non-financial assets, as well as capital transfers.
Correct statements:
i. A double entry system of record of all economic transactions between the residents of a country and rest of the world is called balance of trade. This statement is incorrect because the balance of trade specifically refers to the difference between the value of a country's exports and the value of its imports, not all economic transactions.
ii. All transactions related to goods, services, or income are classified as the capital account. This statement is incorrect as well. While the capital account does include transactions related to the purchase and sale of assets, it does not include transactions related to goods, services, or income. Those transactions are recorded in the current account.
Therefore, the correct answer is option 'D' - none of the statements is right.
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Consider the following statements and identify the right ones.i. A double entry system of record of all economic transactions between the residents of a country and rest of the world is called balance of tradeii. All transactions related to goods, services or income are classified as capital account.a)i onlyb)ii onlyc)bothd)noneCorrect answer is option 'D'. Can you explain this answer?
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