For example, an overall BOP deficit can be supported by drawing down the central bank’s reserve holdings. The U.S. economy’s reliance on consumption and low prices has created a large deficit in the balance of payments. Q. The current account balance can be in surplus (have a positive value), be equal to zero, or be in deficit (have a negative value). 5. This lesson follows on from the introduction lesson to the Balance of Payments.It comprises: around 25 minutes of guided video content, spread across 3 videos To Study MCQs - Balance Of Payment Commerce Notes | EduRev for Commerce A Malaysian company invests in a South African oil company. Which of the following would most likely contribute to a deficit (or reduce the surplus) on the South African current account? Download this set of multiple choice questions, designed to review your knowledge of the balance of payments and policies for tackling imbalances.. ADDITIONAL TEACHER GUIDANCE. Both these deficits reinforce each other and high fiscal deficit usually leads to a high current account deficit and vice versa. 29 Possible policies a government might use to reduce a deficit on the current account of the balance of payments include devaluation, government spending cuts, interest rate rises and tariffs on imports. of MCQs - Balance Of Payment Commerce Notes | EduRev for Commerce, the answers and examples explain the meaning of chapter in the best manner. increase in net capital flows or depletion in foreign exchange reserves). The rise in exports must, therefore, be sufficient to wipe out the deficit X 1 M 1 as well as to 7. To reduce a balance of payments deficit requires a deflationary policy. On the contrary, if our long-term lending reduces from Rs. EduRev is a knowledge-sharing community that depends on everyone being able to pitch in when they know something. 10. [3 Marks] Or Distinguish between BOT and Balance on current account. Explain how a country can run an overall balance of payments deficit or surplus. If there was an increase in interest rates this would cause hot money flows to enter the UK, therefore there would be a surplus on the financial account Balance of payment deficit can be removed through: 10. More importantly, irregular short-term changes in the domestic economic policies with a view to remove the short-term deficits in balance of paymentsmay do more harms than good to the economy. If the current account is in deficit, then the capital account is likely to be in surplus. Yes, well done. (d) Borrowing foreign exchange from an international source. These terms are connected with international trade accounting. Unchecked, a long-term rising deficit can … This is usually accompanied by an increase in consumer credit balances, as such spending is most easily done on credit cards and borrowed money. Answer: A country can run an overall BOP deficit or surplus by engaging in the official reserve transactions. (a) Balance of trade. The deficit X 1 M 1 must be removed through an increase in exports. The difference between the value of a nations visible exports and visible import is. As per the balance of payments manual of the IMF, BoP comprises current account, capital account, errors and omissions, and change in foreign exchange reserves. 1. using search above. The balance of payment (BOP) crisis of 1991 in India The balance of payment crisis occurs when there are insufficient capital account surplus and foreign exchange reserves for financing the current account deficit. Do check out the sample questions Current account B. (c) Either(d) Neither Ans: BQ.3 Transactions that take place to cover deficit or surplus are called ____ transactions. All the others are reflationary policies. India has witnessed a surplus for the third successive year in which account of the balance of payment? A deficit can be financed by capital inflows. Understand the concept behind the Balance of Payments (BoP) The Balance of Payments (BoP) and Balance of Trade (BoT) are two confusing concepts for even economics graduates. (c) Restricting imports. © 2020, Arinjay Academy. This results in large scale imports. Tests & Videos, you can search for the same too. 9. Economics Objective Questions and Answers, which are covered in this chapter, relate to the topic, Balance of Payment. There will be a deficit in the balance of payments when the demand for foreign exchange exceeds its supply, and three will be a surplus when the supply of foreign exchange exceeds the demand. Adjustment through Capital Movements . [AI 2008, CBSE 2013, Sample Paper 2013] Answer: Question 2. None of the above. The short-term and small deficits in balance of payments are quite likely to emerge in wide range of international transactions. 7. You can also find MCQs - Balance Of Payment Commerce Notes | EduRev ppt and other Commerce slides as well. (a) To constant the value of home currency. The balance of trade can be a “favorable” surplus (exports exceed imports) or an “unfavorable” deficit (imports exceed exports). The three components of the balance of payments are the current account, financial account, and capital account. Should a current account deficit be a cause for […] The balance of trade is the official term for net exports that makes up the balance of payments. 9. (b) Balance of payments. You can see some MCQs - Balance Of Payment Commerce Notes | EduRev sample questions with examples at the bottom of this page. But as the exports are raised, there will also be a rise in income which in turn will cause the people to import more from foreign countries. Economics Objective Questions and Answers – Chapter 6 – Balance of Payment, Unit Number 319, Vipul Trade Centre, Sohna Road, Gurgaon, Sector 49, Gurugram, Haryana 122018, India, Monday – Friday (9:00 a.m. – 6:00 p.m. PST) Saturday, Sunday (Closed), Liberalisation, Privatisation and Disinvestment. Question 22. You can download Free MCQs - Balance Of Payment Commerce Notes | EduRev pdf from EduRev by Since these changes cause dislocations in the process of reallocation of resources and short-term fluctuations in the econo… A BoP deficit can be corrected through an official reserve sale which denotes the sale of foreign exchange by the Reserve Bank. Since the repayment of these loans is spread over a long period, This helps the government to remove the deficit in the Balance of payments. (b) Credit entry in current account(c) Debit entry in capital account(d) Debit entry in current accountAns: AQ.7 External deficit of an economy refers to, (a) Fiscal deficit(b) Current account deficit in BOP(c) Revenue deficit, (d) Trade deficitAns: BQ.8 If a country carries a deficit in its current account, such a deficit can be financed by. However, if long-term lending remain constant, the balance of payment will also improve by the like amount which reduces our deficit and comes to Rs. Adjustment through Capital Movements: A country can use capital imports to correct a deficit in its balance of payments. The “current account” of balance of payments comprises the transactions between residents and non-residents in terms of goods, services and incomes. (c) Current Account of Balance of Payment. Complete The Balance of Payments is an economic indicator and the overall record of all economic transactions of a country. Australia has generally had a current account deficit, reflecting attractive investment opportunities in the economy that exceed our capacity to fund via domestic saving. With reduction in imports and control of foreign exchange, visible and invisible imports are reduced. (c) To increase the value of home currency in other currency. Economics Objective Questions and Answers Test contains 10 questions. Accounts of Balance of Payments: 1. Financial account C. Balance of payments D. Gold standard E. Balance of trade. (a) To reduce the value of home currency in other currency. This is Cyclical fluctuations in the business activity bring depression, stagna… This would be treated as a, (a) Credit entry in capital account. He deposits $1 million with bank in India. One of the most important advantages of flexible exchange rates is their ability to adjust automatically to excess demand or supply of the domestic currency, thus automatically bringing about a balance in the balance of payments. The monetary authorities of a country are the financiers when any deficit arises in the country’s balance of payment. (c) Gifts paid to foreigners(d) Repayment of foreign loanAns: AQ.2 Outflow of foreign exchange is recorded on the ____ sides. 120 crores to Rs. this is your one stop solution. A depreciation of the Rand. EduRev is like a wikipedia Q.1 Which of the following items is entered on the credit side of BOP account ? Thus the appropriate changes in income can ensure an improvement in the balance of payments situation of a country. A very high balance of payments deficit may, at some point, cause a loss of confidence by foreign investors. 20 crores. B. (a) Printing of new currency(b) Raising the rate of corporate taxes. Complete MCQs - Balance Of Payment Commerce Notes | EduRev chapter (including extra questions, long questions, short questions, mcq) can be found on EduRev, you can check out Commerce lecture & lessons summary in the same course for Commerce Syllabus. NCERT Solutions for Class 12 Macro Economics Chapter-10 Balance of Payment NCERT TEXTBOOK QUESTIONS SOLVED Question 1. Due to depletion of reserves of gold and foreign currencies, the countries with deficit balance of payments are forced to devalue their currency to overcome the deficit Balance of Payments Adjustment through Capital Movements: Expenditure-Reducing policies: A deficit in the balance of payments implies an excess of expenditure over income. That's correct. It has gotten 14761 views and also has 4.9 rating. ____ is a systematic record of all the economic transaction between one country and rest of the would: 2. Differentiate between Balance of Trade and Current Account Balance. (a) Firms(b) Foreign military personnel(c) Government agencies(d) IndividualsAns: BQ.10 “Unilateral Transfers” are also known as : (a) Bilateral Transfers(b) One-way Transfers. In this post, we provide a mind-map approach to study the Balance of Payments. out Commerce lecture & lessons summary in the same course for Commerce Syllabus. If the capital account is in surplus, then the current account is likely to be in deficit. Answers to Economics MCQs are available at the end of the last question. Sometimes the balance of payments deficit results from extravagant spending, such as citizens taking expensive trips or gravitating towards luxury and exotic products that can only be sourced from abroad. (d) all of theseAns: DQ.14 Cause of BOP imbalance relates to : (b) accommodating items(c) both (a) and (b)(d) neither (a) nor (b)Ans: AQ.15 If balance of trade indicates a surplus of Rs. current account deficits. 4. These developmental imports cause BoP disequilibrium. By continuing, I agree that I am at least 13 years old and have read and agree to the. (c) Both (a) and (b)(d) Neither (a) nor (b)Ans: BQ.11 Autonomous transactions take place on : (c) Both Current and Capital accounts(d) NeitherAns: CQ.12 Autonomous items are related to those transactions which : (a) are determined by motive of profit(b) are not concerned with the equilibrium status of BOP(c) both (a) and (b)(d) none of theseAns: CQ.13 Accommodating items are those items of BOP which: (a) are not determined by considerations of profit, (b) are conditioned by the positive or negative BOP status, (c) lead to increase or decrease in official reserves with RBI. (d) Organization for economic co-operation & development, 6. If you want MCQs - Balance Of Payment Commerce Notes | EduRev Balance of Payment deficit is a situation when autonomous receipts are less than autonomous payments. The correct answer is C. To reduce a balance of payments deficit requires a deflationary policy. This phenomenon is common in developing countries where large scale import of capital goods needed for carrying out various development programmes and it will raisethe deficit in their balance of payments. just for education and the MCQs - Balance Of Payment Commerce Notes | EduRev images and diagram are even better than Byjus! (adsbygoogle = window.adsbygoogle || []).push({}); CHECK OUT ALL ECONOMICS MCQS AT OUR ECONOMICS QUESTION CHAPTER-WISE INDEX : –. 6. The direct impact of large scale development expenditures is seen in increase the purchasing power, aggregate demand and prices. The current account of Balance of Payment includes trade balance and _______. 20,000 lakhs and the imports of goods is half of the exports of goods, then the value of exports will be: The document MCQs - Balance Of Payment Commerce Notes | EduRev is a part of the. Payments comprises the transactions between residents and non-residents in terms of goods C. the components. 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