Question : Assertion: An increase in export earnings leads to a favorable balance of payments.
Reason: Higher export earnings contribute to a surplus 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 Assertion and Reason are true and correct explanation.
An increase in export earnings refers to higher revenue generated from selling goods and services to foreign countries. This increase contributes to a surplus in the current account, which is the part of the balance of payments that records transactions related to trade in goods and services.
The Reason provided is a correct explanation for how an increase in export earnings leads to a favorable balance of payments. When a country's export earnings increase, it means there is a higher inflow of foreign exchange due to the receipt of payment from exports. This higher inflow helps to create a surplus in the current account and contributes to a favorable balance of payments.
Therefore, both the Assertion and Reason are true, and the Reason provides a correct explanation for the Assertion.
Question : Assertion: An increase in import payments leads to an unfavorable balance of payments. Reason: Higher import payments contribute to a deficit in the current account.
Question : Assertion: A decrease in tourism receipts can lead to an unfavorable balance of payments.
Reason: Tourism receipts are considered as invisible exports and contribute to the current account surplus.
Question : Assertion: A surplus in the current account leads to an increase in foreign exchange reserves.
Reason: Surplus in the current account implies that the inflow of foreign exchange exceeds the outflow.
Question : Assertion: An increase in remittances from abroad improves the balance of payments.
Reason: Remittances are considered as invisible exports, contributing to a surplus in the current account.
Question : Assertion: A decrease in foreign aid can contribute to a deficit in the current account.
Reason: Foreign aid inflows are considered as transfers and contribute to the current account surplus.
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