Question

India is a consumption led economy whereas China is an investment led. Which of the following statements are correct?

i. India has current account deficit

ii. Normally China has trade surplus

iii.Problems in world trade will affect China more adversely

A 1) Only i & ii Correct Answer Incorrect Answer
B 2) Only i & iii Correct Answer Incorrect Answer
C 3) Only ii & iii Correct Answer Incorrect Answer
D 4) All i, ii and iii Correct Answer Incorrect Answer
E 5) None of these Correct Answer Incorrect Answer

Solution

China is an investment led economy so it produces lot of goods and services for export market. Thus there will be trade surplus for China. On the other hand, India is consumption driven economy. High consumption is partly filled by imports. Therefore, India is having a current account deficit. If world trade declines, it will more adversely affect China as its export income will reduce.

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