Question

A country's exports are valued at 800 crore, and its imports are valued at 950 crore in a given year. Due to a trade agreement, the country receives a 10% bonus on its export value from a partner nation. What is the effective trade balance of the country after accounting for the bonus?

• A. Rs 30 crore surplus
• B. Rs 70 crore deficit
• C. Rs 30 crore deficit
• D. Rs 70 crore surplus

Hint:

Remember: When calculating trade balance, include any adjustments like bonuses or subsidies to exports before subtracting imports. A negative result always indicates a trade deficit.

Answer 1

The Correct Option is B

To solve the problem, we need to calculate the effective trade balance by considering the export bonus and the import value.

1. Understanding the Concepts:

- Exports: Value of goods sold to other countries.
- Imports: Value of goods bought from other countries.
- Trade Balance: Difference between exports and imports.
- Bonus on Exports: Additional amount received as a percentage of export value.

2. Given Values:

Exports = 800 crore
Imports = 950 crore
Bonus on exports = 10% of export value

3. Calculating the Effective Trade Balance:

Bonus amount = \( 10\% \times 800 = 0.10 \times 800 = 80 \) crore
Effective exports = \( 800 + 80 = 880 \) crore
Trade balance = Effective exports - Imports = \( 880 - 950 = -70 \) crore

Final Answer:

The effective trade balance of the country after accounting for the bonus is -70 crore, indicating a trade deficit of 70 crore.