myCBSEguide

Class 12 - Economics
Term 1 - Balance of Payments - 04

1. Disequilibrium in the balance of payments leads to:

a. decrease in official reserves with RBI
b. none of these
c. increase in official reserves with RBI
d. both increase and decrease in official reserves with RBI
2. Balance of capital account includes
a. None of these
b. Borrowings from abroad Only
c. Borrowings from and lending to abroad
d. lending to abroad only
3. Identify one of the types of balances in BOP account
a. All Invisible items
b. All visible items
c. None of these
d. Accommodating Items
To practice more questions & prepare well for exams, download myCBSEguide App. It provides
complete study material for CBSE, NCERT, JEE (main), NEET-UG and NDA exams.
4. Cause of BoP imbalance relates to:
a. None of these
b. both autonomous and accommodating items
c. autonomous items
d. accommodating items
5. A company located in India receives a loan from a company located abroad. How is this transaction
recorded in India’s balance of payments account?
a. Debit side of capital account
b. Debit side of the current account
c. Credit side of capital account
d. Credit side of current account
6. Accommodating Items are also called
a. None of the above
b. On the line items
c. Above the line items
d. Below the line items
7. Which of the following is not included in the current account balance of payments?
a. Flow of gold
b. Goods
c. Gifts and donations
d. Services
8. When balance of payments balances:
i. current account + capital account = zero
ii. official reserves account is a part of current account
iii. official reserves account is a part of capital account
a. Only iii

Copyright © myCBSEguide.com. Mass distribution in any mode is strictly prohibited. 1 / 5

 myCBSEguide

b. Only i
c. Both i and iii
d. Only ii
9. Balance of payments is in disequilibrium when:
a. current account balance + capital account balance is not equal to zero
b. current account balance + capital account balance is some positive number
c. all of these
d. current account balance + capital account balance is some negative number
10. Which items are included in the Balance of Payments?
a. All of these
b. Visible Items
c. Invisible Items
d. Capital Transfers
11. Surplus in BoP occurs when:
a. receipts > payments
b. both receipts = payments and receipts > payments
c. receipts < payments
d. receipts = payments

For question numbers 12-16, two statements are given- one labeled Assertion (A) and the other labeled
Reason (R). Select the correct answer to these questions from the codes (a), (b), (c) and (d) as given
below:
To practice more questions & prepare well for exams, download myCBSEguide App. It provides complete study
material for CBSE, NCERT, JEE (main), NEET-UG and NDA exams.

a. Both A and R are true and R is the correct explanation of A.

b. Both A and R are true but R is not the correct explanation of A.
c. A is true but R is false.
d. A is false but R is true.

12. Assertion (A): Balance of trade or trade balance is the same terms.
Reason (R): It often refers to the balance occurring on account of the export and import of goods only.
13. Assertion (A): Each country enters into economic transactions with other countries of the world.
Reason (R): As a result of such transactions it receives payment from and makes payments to other
countries.
14. Assertion (A): Foreign direct investment and portfolio investment are non-debt-creating capital
transactions.
Reason (R): Borrowings are debt-creating capital transactions.
15. Assertion (A): The Demand for forex reserves in international markets pushes up.
Reason (R): The availability of forex reserves is low in the international market.
16. Assertion (A): Accommodating items are those items in the BoP account that are related to such
transactions as are determined by considerations of profit.
Reason (R): Accommodating transactions are those items of the BoP account that are conditioned by the
positive or negative BoP status of the country.

Answer questions 17-20 based on the following case study:

Read the following hypothetical text and answer the given questions:
While estimating trade balance, we consider goods only. While estimating goods and services balance, we

Copyright © myCBSEguide.com. Mass distribution in any mode is strictly prohibited. 2 / 5

 myCBSEguide

consider (i) goods, and (ii) non-factor services only. While estimating Invisibles balance, we consider (i) balance
relating to non-factor services, (ii) balance relating to factor services (called balance on income), and (iii)
balance on current transfers.
'Balance' relating to current account BoP is estimated in terms of four parameters as under (i) Trade
Balance/Merchandise Balance = X - M. Trade balance is reflected as (a) Trade Deficit when M > X, and (b) Trade
Surplus when X > M. (ii) Goods and Services Balance = Export of Goods - Import of Goods + Export of nonfactor
services - Import of non-factor services = Trade balance + Balance on account of non-factor services (iii)
Invisibles Balance = Balance on non-factor services + Balance on income (balance on factor services) + Balance
on current transfers (iv) Current Account Balance = Trade Balance + Invisibles Balance.

17. Unilateral transfers are:

a. one-sided payments
b. reciprocal payments
c. factor incomes
d. all of the above
18. ________ = Compensation of employees+investment income
a. factor income
b. transfer income
c. factor payments
d. transfer payments
19. Surplus in BoP occurs when:
a. receipts = payments
b. receipts < payments
c. receipts > payments
d. both (a) and (c)
20. Which of the following are not included in the balance of trade?
a. Payment of interest and dividend
b. Expenditure by the tourists
c. Borrowing from the rest of the world
d. all of the above

Copyright © myCBSEguide.com. Mass distribution in any mode is strictly prohibited. 3 / 5

 myCBSEguide

Term 1 - Balance of Payments - 04

Class 12 - Economics

Solution

1. (d) both increase and decrease in official reserves with RBI

Explanation: Disequilibrium in the balance of payments leads to both increase and decrease in official
reserves with RBI.
2. (c) Borrowings from and lending to abroad
Explanation: Borrowing and lending is done through capital.
3. (d) Accommodating Items
Explanation: These transactions overcome the deficit or surplus arising from autonomous items.
4. (c) autonomous items
Explanation: The cause of BoP imbalance relates to autonomous items.
5. (c) Credit side of capital account
Explanation: Credit side of the capital account, because it leads to inflow of foreign exchange.
To practice more questions & prepare well for exams, download myCBSEguide App. It provides
complete study material for CBSE, NCERT, JEE (main), NEET-UG and NDA exams.
6. (d) Below the line items
Explanation: These are those transactions that occur because of other activities like government
financing.
7. (a) Flow of gold
Explanation: The flow of gold, bonds and shares is to be recorded in the capital account.
8. (c) Both i and iii
Explanation: Balance of payments balances when current account + capital account = zero and official
reserves account is a part of capital account.
9. (c) all of these
Explanation: all of these
10. (a) All of these
Explanation: All the options are included in the Balance of Payments.
11. (a) receipts > payments
Explanation: receipts > payments
12. (b) Both A and R are true but R is not the correct explanation of A.
Explanation: Balance of trade or trade balance is the same terms It often refers to the balance
occurring on account of the export and import of goods only.
13. (a) Both A and R are true and R is the correct explanation of A.
Explanation: Each country enters into economic transactions with other countries of the world. As a
result of such transactions, it receives payments from and makes payments to other countries.
14. (b) Both A and R are true but R is not the correct explanation of A.
Explanation: Foreign direct investment and portfolio investment are non-debt-creating capital
transactions while Borrowings are debt-creating capital transactions.
15. (a) Both A and R are true and R is the correct explanation of A.
Explanation: The Demand for forex reserves in international markets pushes up because the
availability of forex reserves is low in the international market.
To practice more questions & prepare well for exams, download myCBSEguide App. It provides
complete study material for CBSE, NCERT, JEE (main), NEET-UG and NDA exams.
16. (d) A is false but R is true.

Copyright © myCBSEguide.com. Mass distribution in any mode is strictly prohibited. 4 / 5

 myCBSEguide

Explanation: Accommodating items are those items in the BoP account that are not related to such
transactions as are determined by considerations of profit. Accommodating transactions are those
items of the BoP account that are conditioned by the positive or negative BoP status of the country.
17. (a) one-sided payment
18. (a) factor income
19. (c) receipts > payments
20. (d) all of the above

Copyright © myCBSEguide.com. Mass distribution in any mode is strictly prohibited. 5 / 5