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

Given: \[ \text{Exports} = Rs 800 \, \text{crore}, \quad \text{Imports} = Rs 950 \, \text{crore}, \quad \text{Bonus} = 10% \, \text{of exports} \] 
Step 1: Formula for Trade Balance The trade balance is calculated as the difference between the value of exports (including any bonuses) and imports: \[ \text{Trade Balance} = \text{Effective Exports} - \text{Imports} \] A positive trade balance indicates a surplus, while a negative trade balance indicates a deficit. 
Step 2: Calculate the Bonus on Exports The bonus is 10% of the export value: \[ \text{Bonus} = 0.10 \times 800 = Rs 80 \, \text{crore} \] 
Step 3: Calculate Effective Exports Add the bonus to the original export value: \[ \text{Effective Exports} = 800 + 80 = Rs880 \, \text{crore} \] 
Step 4: Calculate Trade Balance Substitute the values into the trade balance formula: \[ \text{Trade Balance} = 880 - 950 = -70 \, \text{crore} \] Since the result is negative, the country has a trade deficit of Rs 70 crore. 
Answer: The correct answer is option (2): Rs 70 crore deficit.