Question
Consider the following statements: 1. Balance
of Payments (BoP) records the economic transactions between the citizens and non-citizens of a country. 2. Trade protectionists policies of the USA government can adversely impact the Current Account Deficit of India. Which of the statements given above is/are correct?Solution
● Statement 1 is incorrect: Balance of Payment refers to the economic transactions occurring between the residents and the non-residents of a country. It does not include the concept of citizens and non-citizens. The Balance of Payment is composed of two components: Current Account Visibles (Goods) Invisibles (Services, Income in the form of Interest, profit, dividend, and Transfer Payment: remittances, donations, etc) o Capital Account Investment like FDI or FPI Loans Bank deposits or Foreign Currency Nonresident Accounts. ● Statement 2 is correct: Trade protectionist policy of a country aims at reserving the economy and market for the residents or locals. It prohibits imports from other countries. Such a policy of USA is bound to decrease India’s exports and hence would lead to deficit in the Current Account as trade in invisibles and visibles forms a part of the Current Account.
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