Question : Assertion: A current account deficit can be compensated by a surplus in the capital account.
Reason: Surplus in the capital account can help finance the deficit in the current account.
Option 1: Both Assertion and Reason are true and correct explanation
Option 2: Both Assertion and Reason are true and incorrect explanation
Option 3: Assertion is true but Reason is false
Option 4: Assertion is false but Reason is true
Correct Answer: Both Assertion and Reason are true and correct explanation
Solution : The correct answer is (a) Both the Assertion and the Reason are true and provide a correct explanation.
The Assertion states that a current account deficit can be compensated by a surplus in the capital account, which is true. When a country has a current account deficit, it means that its imports exceed its exports, resulting in a net outflow of funds. This deficit can be offset by a surplus in the capital account, which represents inflows of funds from foreign sources such as foreign direct investment, portfolio investment, or borrowing. The surplus in the capital account can help finance the deficit in the current account.
The Reason states that a surplus in the capital account can help finance the deficit in the current account, which is also true and supports the Assertion. The surplus in the capital account represents inflows of funds that can be used to finance the current account deficit, helping to cover the shortfall in the balance of payments.
Therefore, Both Assertion and Reason are true and provide a correct explanation.
