NCERT MOST IMPORTANT QUESTIONS CLASS – 12 | MACROECONOMICS IMPORTANT QUESTIONS | BALANCE OF PAYMENT | EDUGROWN |

In This Post we are  providing BALANCE OF PAYMENT NCERT MOST IMPORTANT QUESTIONS for Class 12 which will be beneficial for students. These solutions are updated according to 2021-22 syllabus. These MCQS  can be really helpful in the preparation of Board exams and will provide you with a brief knowledge of the chapter

NCERT MOST IMPORTANT QUESTIONS ON BALANCE OF PAYMENT

1. Distinguish between autonomous and accommodating transactions of Balance of Payments account.
Ans. Autonomous items, also termed as ‘above the line items’, are those items, which are related to transactions which are determined by considerations of profit (economic motive) and hence, was no concern with the state of BoP. Autonomous transactions are present in both current and capital account of BoP, While accommodating transactions are present only in capital account of BoP. Accommodating items, also termed as ‘below the line items’, are those items of BoP that are not determined by considerations of profit but to restore identity of BoP.
The difference between autonomous and accommodating transacting is mat while deficit or surplus in BoP due to autonomous items, the accommodating items, are meant to restore the BoP identity.

2. Distinguish between Balance of Trade and balance on current account.
or
Distinguish between Balance of Trade and balance on current account of Balance of Payments.       (All India 2013)
Ans. Difference between Balance of Trade and balance on current account

Basis	Balance of Trade	Balance on current account
Meaning	Balance of Trade includes only visible items. It is the difference between exports and imports of goods of a country.	Balance of current account is the difference between sum of credit items and sum of debit items on current account.
Coverage	Balance of Trade does not record any transactions of invisible items and transfers	Balance of current account includes balance of visible items, balance of invisible items and balance of unilateral transfer.
Concept	Balance of Trade is a narrow concept and it is only a part of the Balance of Payment account.	Balance of current account includes the Balance of Trade hence, it is a broader concept.

3. State the components of capital account of Balance of Payments.
Ans. Components of capital account of Balance of Payments:
(i) Investments It includes investments to and from abroad in the form of FDI and Fll. Investment from abroad is a ‘credit’ item, whereas investment to abroad is a ‘debit’ item.
(ii) Borrowing and lending It includes the borrowings by residents from the residents of abroad (credit item), and sending to the resident of foreign country (debit item).
(iii) Foreign exchange It includes the reserve of foreign currency gold and Special Drawing Rights (SDRs) with the domestic country.

4. What does a Balance of Payments account show? Name the two parts of the Balance of Payments account.
Ans. The Balance of Payment (BoP) of a country is a systematic record of all economic transactions between its residents and residents of foreign countries. It summarises the exports and imports and other international transaction of a country with other countries.
Two parts of Balance of Payments account are as follows:
(i) Current account                  (ii) Capital account

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5. List the transactions of current account of the Balance of Payments.

Ans. The transactions included in the current account of the Balance of Payments are:
(i) Export and import of visible items                      (ii) Export and import of services (invisible items)
(iii) Unilateral transfers

6. Explain the concept of surplus in the Balance of Payments account.
Ans. Balance of surplus When the receipts of the country on account of autonomous transactions exceed the payments of a country on account of autonomous transactions, this difference is termed as BoP surplus.
BoP Surplus = R>P, where R = Receipts of the country, P = Payment of the country, e.g., if the receipts of the country is Rs. 200 crore and the payments are Rs. 190 crore, then BoP surplus will be (200 -190) = Rs. 10 crore.

7. List the items of the current account of Balance of Payments account. Also define Balance of Trade.
Ans. Components of current account are as follows:
(i) Export and import of goods (visible items).
(ii) Export and import of services (invisible items).
(iii) Unilateral transfers to and from abroad.
Balance of Trade
Balance of Payment The Balance of Payment (BoP) of a country is a systematic record of all economic transactions between its residents and residents of foreign countries.
Balance of Payments account are classified into current account and capital account. Borrowing from abroad are recorded in the capital account (credit side) of Balance of Payments as it is a foreign liability on the country and it is to be repaid with interest.
Trade Balance The difference between export and import of goods, i.e. only the visible items of economic transactions is termed as Balance of Trade.
Balance of Trade = Export Goods – Import of Goods
Current account balance Current account is that account of BoP, which records exports and imports of visible and invisible items and unilateral transfers.

8. Distinguish between Balance of Trade account and current account balance of BoP account.
Ans. Difference between Balance of Trade and current account balance of BoP account

Basis	Balance of Trade	Balance on current account
Meaning	Balance of Trade includes only visible items. It is the difference between exports and imports of goods of a country.                               .	Balance of current account is the difference between sum of credit items and sum of debit items on current account.
Coverage	Balance of Trade does not record any transactions of invisible items and transfers	Balance of current account includes balance of visible items, balance of invisible items and balance of unilateral transfer.
Concept	Balance of Trade is a narrow concept and it is only a part of the Balance of Payment account.	Balance of current account includes the Balance of Trade.
Financing of deficit	A deficit in Balance of Trade can be meet out by surplus of current account.	Deficit in current account cannot be meet out by using surplus of BoT.

9. Distinguish between current account and capital account of Balance of Payments.
Ans. Current account is that account of BoP, which records exports and imports of visible and invisible items and unilateral transfers. Current account shows the trade position of the country. Whereas capital account shows the assets and liabilities position of the country.
It records capital transfer such as loans and investments between one country and the rest of the world, which causes a change in the assets or liability status of the residents of a country or its government.

 6 Mark Question

10. Explain the distinction between autonomous and accommodating transactions in Balance of Payments. Also explain the concept of Balance of Payments deficit in this context.     
Ans. Autonomous items, also termed as ‘above the line items’, are those items, which are related to transactions which are determined by considerations of profit (economic motive). Autonomous transactions are that transaction between the residents of two countries which take place due to the considerations of profit. Autonomous items are not conditioned by the BoP status of the country, i.e. these are independent. Autonomous transactions are not done to establish identity of BoP. i.e. current account and capital account.
Accommodating items, also termed as ‘below the line items’, are those items of BoP that are not determined by considerations of profit but to restore identity of BoP. These are undertaken to maintain balance in the BoP account. These transactions correct the disequilibrium in autonomous items of BoP account. Accommodating transactions are also known as ‘below the line items’ and include foreign exchange reserve and borrowings to meet BoP deficit.
BoP Deficit
When the payments of a country on account of autonomous transactions exceed the receipts of the country on account of autonomous transactions, this difference is termed as BoP deficit.
Deficit in BoP = Receipts on account of autonomous transactions < Payments on account of autonomous transactions Suppose, the receipts of the domestic country is r 200 crore. Where as payments are r 220 crore. Then BoP deficit will be
= 220 – 200 crore = Rs. 20 crore