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Consider the following statements:
- Autonomous transactions are independent of the deficit or surplus in the Balance of Payments.
- 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: Autonomous transactions are indepen...
- When the country’s reserve bank is using its reserves of foreign exchange in order to balance any deficit in its balance of payments (BoP), it is called official reserve sale.
- International economic transactions are called autonomous when transactions are made due to some reason other than to bridge the gap in the balance of payments, that is, when they are independent of the state of BoP. One reason could be to earn profit. These items are called ‘above the line’ items in the BoP. Hence, statement 1 is correct.
- Accommodating transactions (termed ‘below the line’ items) refer to transactions that take place to cover deficit (or surplus) arising from autonomous transactions. They are determined by the gap in the balance of payments, that is, whether there is a deficit or surplus in the balance of payments. Since the official reserve transactions are made to bridge the gap in the BoP, they are seen as the accommodating item in the BoP (all others being autonomous). Hence, statement 2 is correct.
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Consider the following statements: Autonomous transactions are indepen...
Autonomous transactions and Accommodating transactions are two key concepts in the field of international economics and the Balance of Payments (BoP). Let's understand each statement and analyze their correctness.
1. Autonomous transactions are independent of the deficit or surplus in the Balance of Payments:
- Autonomous transactions refer to international transactions that are undertaken voluntarily and are not influenced by changes in the BoP. These transactions include trade in goods and services, as well as unilateral transfers such as foreign aid and remittances. They are driven by factors such as market forces, consumer preferences, and investment decisions.
- The statement is correct because autonomous transactions are not directly affected by the deficit or surplus in the BoP. They occur regardless of the overall balance of payments position and are influenced by factors other than the BoP.
2. Accommodating transactions refer to transactions that take place to cover deficit or surplus arising from autonomous transactions:
- Accommodating transactions are those transactions that occur specifically to cover any deficit or surplus in the BoP resulting from autonomous transactions. These transactions include foreign borrowing, lending, and reserves transactions conducted by the central bank or government.
- The statement is correct because accommodating transactions are undertaken to address the imbalance in the BoP caused by autonomous transactions. They are designed to finance the deficit or utilize the surplus in the BoP and ensure that the overall balance remains in equilibrium.
In conclusion, both statements are correct:
a) Autonomous transactions are independent of the deficit or surplus in the Balance of Payments.
b) Accommodating transactions refer to transactions that take place to cover deficit or surplus arising from autonomous transactions.
Understanding the distinction between autonomous and accommodating transactions helps us analyze the dynamics and implications of international trade and finance. Autonomous transactions are driven by non-BoP factors, while accommodating transactions are aimed at maintaining balance in the BoP.
1. Autonomous transactions are independent of the deficit or surplus in the Balance of Payments:
- Autonomous transactions refer to international transactions that are undertaken voluntarily and are not influenced by changes in the BoP. These transactions include trade in goods and services, as well as unilateral transfers such as foreign aid and remittances. They are driven by factors such as market forces, consumer preferences, and investment decisions.
- The statement is correct because autonomous transactions are not directly affected by the deficit or surplus in the BoP. They occur regardless of the overall balance of payments position and are influenced by factors other than the BoP.
2. Accommodating transactions refer to transactions that take place to cover deficit or surplus arising from autonomous transactions:
- Accommodating transactions are those transactions that occur specifically to cover any deficit or surplus in the BoP resulting from autonomous transactions. These transactions include foreign borrowing, lending, and reserves transactions conducted by the central bank or government.
- The statement is correct because accommodating transactions are undertaken to address the imbalance in the BoP caused by autonomous transactions. They are designed to finance the deficit or utilize the surplus in the BoP and ensure that the overall balance remains in equilibrium.
In conclusion, both statements are correct:
a) Autonomous transactions are independent of the deficit or surplus in the Balance of Payments.
b) Accommodating transactions refer to transactions that take place to cover deficit or surplus arising from autonomous transactions.
Understanding the distinction between autonomous and accommodating transactions helps us analyze the dynamics and implications of international trade and finance. Autonomous transactions are driven by non-BoP factors, while accommodating transactions are aimed at maintaining balance in the BoP.
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Consider the following statements: Autonomous transactions are independent of the deficit or surplus in the Balance of Payments. 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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