Directions: The following Six (6) items consist of two statements, one labelled as the. Assertion (A). and the other as. Reason (R). You are to examine these two statements carefully and select the answers to these items using the code given below:
1. Assertion (A): Balance of Payments. represents a better picture of a country's economic transactions with the rest of the world than the. Balance of Trade.
2. Reason (R) : Balance of Payments. Takes into account the exchange of both visible and invisible items whereas. Balance of Trade. does not.
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
Correct Answer: Option A
Explanation
1. Assertion (A) is true. The Balance of Payments (BoP) provides a comprehensive record of all economic transactions between residents of a country and the rest of the world over a period. The Balance of Trade (BoT) only records transactions related to the export and import of goods (visible items). Since BoP includes trade in goods, trade in services (invisible items), capital flows, and unilateral transfers, it gives a better picture of the overall economic position.
2. Reason (R) is true. The Balance of Payments accounts for both visible items (goods) and invisible items (services, income, transfers), whereas the Balance of Trade focuses solely on visible items.
3. R correctly explains A because the inclusion of invisible items (and capital flows) in the BoP is precisely why it represents a better and more complete picture of economic transactions than the BoT.