Question

Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative from those given below: Assertion (A): In case of an unfavourable Balance of Trade, the Current Account of the nation may be in surplus. Reason (R): Net invisible receipts of a nation can exceed the Net visible receipts. (Choose the correct alternative)

• A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
• B. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
• C. Assertion (A) is true, but Reason (R) is false.
• D. Assertion (A) is false, but Reason (R) is true.

Hint:

A country can have a trade deficit but still maintain a Current Account surplus if it earns significantly from services and remittances.

Answer 1

The Correct Option is A

1. Assertion (A) is true:
- A nation’s Balance of Trade (BoT) may be negative if visible imports exceed visible exports.
- However, the Current Account can still be in surplus if net invisible receipts (services, remittances, and transfers) exceed net visible receipts. 2. Reason (R) is also true and explains Assertion (A):
- Invisible receipts include earnings from tourism, IT services, remittances, and financial transfers, which may offset the deficit in visible trade.
- If these invisible receipts are high enough, the Current Account may remain in surplus despite a trade deficit. Conclusion: Since both the assertion and reason are correct, and the reason explains the assertion, option (A) is correct.