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Consider the following statements:
1. Autonomous transactions are independent of the deficit or surplus in the Balance of Payments.
2. Accommodating transactions refer to transactions that take place to cover deficit or surplus arising from autonomous transactions.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'C'. Can you explain this answer?
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Consider the following statements:1. Autonomous transactions are indep...
Autonomous Transactions and Balance of Payments
- Autonomous transactions refer to transactions that occur due to economic factors such as investment, trade, and income flows. These transactions are not influenced by the balance of payments situation.
- The balance of payments is a record of all economic transactions between a country and the rest of the world during a given period. It includes both autonomous transactions and accommodating transactions.
- Accommodating transactions are transactions that take place to cover deficits or surpluses arising from autonomous transactions. These transactions are influenced by the deficit or surplus in the balance of payments.
Statement 1: Autonomous transactions are independent of the deficit or surplus in the Balance of Payments.
- This statement is correct. Autonomous transactions are not influenced by the balance of payments situation. They are driven by economic factors such as investment, trade, and income flows.
- For example, if a country attracts foreign investment, it will lead to an autonomous inflow of capital. This transaction is independent of the deficit or surplus in the balance of payments.
Statement 2: Accommodating transactions refer to transactions that take place to cover deficit or surplus arising from autonomous transactions.
- This statement is also correct. Accommodating transactions are transactions that occur to cover deficits or surpluses arising from autonomous transactions.
- If a country has a deficit in its balance of payments due to a higher value of imports compared to exports, it needs to cover this deficit. This can be done through accommodating transactions such as borrowing from foreign sources or using foreign exchange reserves.
- Similarly, if a country has a surplus in its balance of payments due to a higher value of exports compared to imports, it can use accommodating transactions to utilize this surplus. This can be done through actions such as investing in foreign assets or repaying foreign debts.
Conclusion
- Both statements 1 and 2 are correct. Autonomous transactions are independent of the deficit or surplus in the balance of payments, while accommodating transactions are undertaken to cover deficits or surpluses arising from autonomous transactions.
- Autonomous transactions refer to transactions that occur due to economic factors such as investment, trade, and income flows. These transactions are not influenced by the balance of payments situation.
- The balance of payments is a record of all economic transactions between a country and the rest of the world during a given period. It includes both autonomous transactions and accommodating transactions.
- Accommodating transactions are transactions that take place to cover deficits or surpluses arising from autonomous transactions. These transactions are influenced by the deficit or surplus in the balance of payments.
Statement 1: Autonomous transactions are independent of the deficit or surplus in the Balance of Payments.
- This statement is correct. Autonomous transactions are not influenced by the balance of payments situation. They are driven by economic factors such as investment, trade, and income flows.
- For example, if a country attracts foreign investment, it will lead to an autonomous inflow of capital. This transaction is independent of the deficit or surplus in the balance of payments.
Statement 2: Accommodating transactions refer to transactions that take place to cover deficit or surplus arising from autonomous transactions.
- This statement is also correct. Accommodating transactions are transactions that occur to cover deficits or surpluses arising from autonomous transactions.
- If a country has a deficit in its balance of payments due to a higher value of imports compared to exports, it needs to cover this deficit. This can be done through accommodating transactions such as borrowing from foreign sources or using foreign exchange reserves.
- Similarly, if a country has a surplus in its balance of payments due to a higher value of exports compared to imports, it can use accommodating transactions to utilize this surplus. This can be done through actions such as investing in foreign assets or repaying foreign debts.
Conclusion
- Both statements 1 and 2 are correct. Autonomous transactions are independent of the deficit or surplus in the balance of payments, while accommodating transactions are undertaken to cover deficits or surpluses arising from autonomous transactions.
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Consider the following statements:1. Autonomous transactions are independent of the deficit or surplus in the Balance of Payments.2. Accommodating transactions refer to transactions that take place to cover deficit or surplus arising from autonomous transactions.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer?
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