Distinguish between autonomous transactions and accommodating transactions in
the Balance of Payments of the economy.
Solution and Explanation
- Autonomous Transactions:
These are transactions that occur due to economic conditions or external factors and do not require any adjustment in the Balance of Payments. They are also known as independent transactions. Examples include exports, imports, foreign investment, and loans.
- Accommodating Transactions:
These transactions occur as a result of adjustments to maintain the Balance of Payments equilibrium. They include borrowing from foreign countries or drawing down reserves. They are required to balance the inflows and outflows from autonomous transactions.
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