(b) Balance of payments. 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. A very high balance of payments deficit may, at some point, cause a loss of confidence by foreign investors. (adsbygoogle = window.adsbygoogle || []).push({}); CHECK OUT ALL ECONOMICS MCQS AT OUR ECONOMICS QUESTION CHAPTER-WISE INDEX  : –. The balance of payment is the statement that files all the transaction between the entities, government anatomy or individuals of one country to another for a given period of time. 6. You can download Free MCQs - Balance Of Payment Commerce Notes | EduRev pdf from EduRev by 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. Q.1 Which of the following items is entered on the credit side of BOP account ? (a)  Investment from abroad(b) Import of goods. Both these deficits reinforce each other and high fiscal deficit usually leads to a high current account deficit and vice versa. The balance of payment is a comprehensive and systematic records of all economic transaction between normal residents of a country and rest of the world during an accounting year. 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. (d) Borrowing foreign exchange from an international source. A deficit can be financed by capital inflows. 40 crores, the balance of payments deficit … Should a current account deficit be a cause for […] Consequently, (S – I d) function will shift to the left and the equilibrium between (X d – M) and (S – I d)’ takes place at Y 1 lower level of income where the payments deficit has completely disappeared. 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. This can lead to a decline in living standards and lower confidence for investment. You can also find MCQs - Balance Of Payment Commerce Notes | EduRev ppt and other Commerce slides as well. Cyclical fluctuations in the business activity bring depression, stagna… In India which authority takes the purview of import & export: (a)    To reduce the value of home currency in other currency, (b)    To appreciate the value of home currency. On the contrary, if our long-term lending reduces from Rs. The difference between the value of a nations visible exports and visible import is. (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. MCQs - Balance Of Payment Commerce Notes | EduRev notes for Commerce is made by best teachers who have written some of the best books of _______ is a systematic record of all transactions of a country in a year. Balance of Payment deficit is a situation when autonomous receipts are less than autonomous payments. just for education and the MCQs - Balance Of Payment Commerce Notes | EduRev images and diagram are even better than Byjus! ____ is a systematic record of all the economic transaction between one country and rest of the would: 2. Tests & Videos, you can search for the same too. Balance of payment deficit can be removed through: 10. With reduction in imports and control of foreign exchange, visible and invisible imports are reduced. 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. If you want MCQs - Balance Of Payment Commerce Notes | EduRev Home » Economics MCQS » Economics Objective Questions and Answers – Chapter 6 – Balance of Payment. of MCQs - Balance Of Payment Commerce Notes | EduRev for Commerce, the answers and examples explain the meaning of chapter in the best manner. Yes, well done. 9. A depreciation of the Rand. It has gotten 14761 views and also has 4.9 rating. out Commerce lecture & lessons summary in the same course for Commerce Syllabus. 5. 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. He deposits $1 million with bank in India. 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. (c) Gifts paid to foreigners(d) Repayment of foreign loanAns: AQ.2 Outflow of foreign exchange is recorded on the ____ sides. Countries with deficit bop found their international reserves dwindling which forced them to devalue their currency. Financial account C. Balance of payments D. Gold standard E. Balance of trade. Hence the country must borrow from other countries to pay for its imports. Since these changes cause dislocations in the process of reallocation of resources and short-term fluctuations in the econo… 10. 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. 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 This is usually accompanied by an increase in consumer credit balances, as such spending is most easily done on credit cards and borrowed money. A deficit in current account always reflects in an increase in net financial claims of foreigners (i.e. 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. Differentiate between Balance of Trade and Current Account Balance. (d) Borrowing foreign exchange from an international source.Ans: DQ.9 Who out of the following is not included in “Residents” in BOP transactions ? The current account of Balance of Payment includes trade balance and _______. We hope the same would help in quick understanding and revision. A. It is an important macro-economic indicator that helps a country’s Reserve Bank to gauge the economic trends in the past, and create monetary policies. (a) To reduce the value of home currency in other currency. 8. If the current account is in balance, the capital account is also likely to be in balance. None of the above. Commerce. You can see some MCQs - Balance Of Payment Commerce Notes | EduRev sample questions with examples at the bottom of this page. A current account deficit is eliminated through currency depreciation; a surplus is eliminated by currency appreciation. 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. MCQs - Balance Of Payment Commerce Notes | EduRev chapter (including extra questions, long questions, short questions, mcq) can be found on EduRev, you can check (c)     To increase the value of home currency in other currency. 7. Balance of Payment class 12 Notes Economics. To reduce a balance of payments deficit requires a deflationary policy. 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 balance of payments deficit means the country imports more goods, services, and capital than it ex[ports. All the transaction details are mentioned in the statement, giving the authority a clear vision of the flow of fund. Crash Course of Macro Economics -Class 12, Reason Based & Extra Questions - Balance Of Payment, Scanner - Balance Of Payment, (2014 - 2018), Crash Course of Micro Economics -Class 12, Crash Course of Business Studies(BST)- Class 12, TS Grewal Solutions - Class 11 Accountancy, TS Grewal Solutions - Class 12 Accountancy. Economics Objective Questions and Answers, which are covered in this chapter, relate to the topic, Balance of Payment. 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 B. The balance of payments is regarded as being in disequilibrium when it shows either a surplus or a deficit. The short-term and small deficits in balance of payments are quite likely to emerge in wide range of international transactions. Q. This is Economics Objective Questions and Answers Test contains 10 questions. A country can use capital imports to correct a deficit in its balance of payments. 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. The balance of trade can be a “favorable” surplus (exports exceed imports) or an “unfavorable” deficit (imports exceed exports). [AI 2008, CBSE 2013, Sample Paper 2013] Answer: Question 2. The Balance of Payments is an economic indicator and the overall record of all economic transactions of a country. 9. 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. Therefore, there is always a risk, that investors will remove their investments causing a big fall in the value of your currency (devaluation). (a) Printing of new currency(b) Raising the rate of corporate taxes. (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. Unchecked, a long-term rising deficit can … Complete Current account B. using search above. current account deficits. Do check out the sample questions That's correct. (c)     Current Account of Balance of Payment. The “current account” of balance of payments comprises the transactions between residents and non-residents in terms of goods, services and incomes. [Current A/c + Capital A/c Receipts ] < [Current A/c + Capital A/c Payments ] Autonomous transactions are those transactions which are carried out with economic motive irrespective of the present position of the BOP. This would be treated as a, (a) Credit entry in capital account. 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. Australia has generally had a current account deficit, reflecting attractive investment opportunities in the economy that exceed our capacity to fund via domestic saving. All rights reserved. The monetary authorities of a country are the financiers when any deficit arises in the country’s balance of payment. If the current account is in deficit, then the capital account is likely to be in surplus. 3. Balance of Payments Adjustment through Capital Movements: The rise in exports must, therefore, be sufficient to wipe out the deficit X 1 M 1 as well as to (c) Either(d) Neither Ans: BQ.3 Transactions that take place to cover deficit or surplus are called ____ transactions. Adjustment through Capital Movements . 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 Question 22. A BoP deficit can be corrected through an official reserve sale which denotes the sale of foreign exchange by the Reserve Bank. Accounts of Balance of Payments: 1. 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. 1. 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) Balance … The government can also secure loans from foreign banks or foreign governments to reduce the deficit in the balance of payments. © 2020, Arinjay Academy. (a) Balance of trade. C. Expenditure-Reducing policies: A deficit in the balance of payments implies an excess of expenditure over income. The balance of trade is the official term for net exports that makes up the balance of payments. Adjustment through Capital Movements: A country can use capital imports to correct a deficit in its balance of payments. Ultimately, the deficit in the balance of payments is removed when exports rise faster than imports. NCERT Solutions for Class 12 Macro Economics Chapter-10 Balance of Payment NCERT TEXTBOOK QUESTIONS SOLVED Question 1. EduRev is like a wikipedia Commerce MCQs - Balance Of Payment Commerce Notes | EduRev Summary and Exercise are very important for (d) Organization for economic co-operation & development, 6. A Malaysian company invests in a South African oil company. Thus the appropriate changes in income can ensure an improvement in the balance of payments situation of a country. your solution of MCQs - Balance Of Payment Commerce Notes | EduRev search giving you solved answers for the same. Conversely, they are also the recipients when there is a surplus in the country’s BoP. [3 Marks] Or Distinguish between BOT and Balance on current account. Measure # 4. Balance of payment deficit can be removed through: (a) Devaluation of currency (b) Vigorous export promotion (c) Import substitution (a) All of the above. this is your one stop solution. The deficit X 1 M 1 must be removed through an increase in exports. In this post, we provide a mind-map approach to study the Balance of Payments. Consequently, an adverse balance of payment is corrected. Which of the following would most likely contribute to a deficit (or reduce the surplus) on the South African current account? 4. The three components of the balance of payments are the current account, financial account, and capital account. This will reduce the level of aggregate demand and therefore the demand for imports. Answers to Economics MCQs are available at the end of the last question. (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. The current account balance can be in surplus (have a positive value), be equal to zero, or be in deficit (have a negative value). (c) Restricting imports. increase in net capital flows or depletion in foreign exchange reserves). If the capital account is in surplus, then the current account is likely to be in deficit. To Study MCQs - Balance Of Payment Commerce Notes | EduRev for Commerce perfect preparation. These developmental imports cause BoP disequilibrium. As per IMF balance of payment manual, import export of goods should be presented on: (a)    Organization for export co-operation & development, (b)    Organization for economic commission & development, (c)     Organization for export commission & development, (d)    Organization for economic co-operation & development. Answer: A country can run an overall BOP deficit or surplus by engaging in the official reserve transactions. 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. (a) Accommodating(b) Autonomous(c) Current account(d) Above the lineAns: AQ.4 When receipts of foreign exchange are less than payments of foreign exchange, then BOP is:(a) Deficit(b) Surplus(c) Balanced(d) None of theseAns: AQ.5 Foreign exchange transaction dependent on other foreign exchange transactions are called : (a) Current account transaction(b) Capital account transaction(c) Autonomous transaction(d) Accommodating transactionAns: DQ.6 Dr. Manjeet Singh is an NRI, settled in Canada. The correct answer is C. To reduce a balance of payments deficit requires a deflationary policy. 120 crores to Rs. These terms are connected with international trade accounting. The difference between the value of a nations visible exports and visible import is. 20 crores. The devaluation has an inflationary potential. The direct impact of large scale development expenditures is seen in increase the purchasing power, aggregate demand and prices. (a)    To constant the value of home currency. A. ACTIVITY 7: MCQ QUIZ. (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. 7. These deficits do not call for immediate corrective actions. This results in large scale imports. By continuing, I agree that I am at least 13 years old and have read and agree to the. Explain how a country can run an overall balance of payments deficit or surplus. EduRev is a knowledge-sharing community that depends on everyone being able to pitch in when they know something. 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. Borrow from other Countries to pay for its imports can be supported by drawing down the bank... Improvement in the balance of payments regarded as being in disequilibrium when it shows either a surplus in the of... 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