Directions: In the following questions, a statement of assertion (A) ...
Autonomous items refers to those Balance of Payment (BOP) transactions which are undertaken for profit.
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Directions: In the following questions, a statement of assertion (A) ...
Assertion (A): Autonomous items cause movements of goods and services across the borders.
Reason (R): Accommodating items to clear the deficit or surplus in the Balance of Payment.
The correct answer is option 'B' - Both assertion (A) and reason (R) are true but reason (R) is not the correct explanation of assertion (A).
Explanation:
Autonomous items: Autonomous items in the Balance of Payments (BoP) refer to transactions that are not influenced by economic policy measures. These transactions are driven by market forces and include imports, exports, and investments in goods, services, and assets.
Movements of goods and services across borders: Autonomous items, such as imports and exports, directly involve the movement of goods and services across borders. Imports refer to goods and services purchased from foreign countries, while exports refer to goods and services sold to foreign countries.
Balance of Payments (BoP): The Balance of Payments is a record of all economic transactions between the residents of a country and the rest of the world over a specific period. It consists of two main components: the current account and the capital account. The current account records transactions related to trade in goods and services, income receipts, and unilateral transfers, while the capital account records transactions involving financial assets and liabilities.
Deficit or surplus in the Balance of Payment: The balance of payments can be in deficit or surplus depending on the value of imports and exports, as well as other autonomous transactions. A deficit occurs when the value of imports exceeds the value of exports, resulting in a net outflow of currency. Conversely, a surplus occurs when the value of exports exceeds the value of imports, resulting in a net inflow of currency.
Explanation of the assertion and reason:
The assertion states that autonomous items cause movements of goods and services across borders, which is true. Imports and exports, which are autonomous items, involve the physical movement of goods and services across international borders.
The reason states that accommodating items to clear the deficit or surplus in the Balance of Payment, which is not the correct explanation of the assertion. While it is true that deficit or surplus in the Balance of Payment can be addressed by accommodating items, such as borrowing or lending, it does not directly explain the movement of goods and services across borders.
Conclusion:
Therefore, both the assertion and reason are true, but the reason is not the correct explanation of the assertion. Hence, the correct answer is option 'B'.
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