Question : Assertion: An increase in the outflow of dividends to foreign investors reduces the current account balance.
Reason: Dividend outflows are considered as invisible imports and contribute to the current account deficit.
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 an increase in the outflow of dividends to foreign investors reduces the current account balance, which is true. Dividend outflows represent payments made to foreign investors who hold shares in domestic companies. When dividends are paid out to foreign investors, it represents an outflow of funds from the domestic economy, which reduces the current account balance.
The Reason states that dividend outflows are considered as invisible imports and contribute to the current account deficit, which is also true. Invisible imports refer to payments made to foreign entities for services received, and dividend outflows fall under this category. The payment of dividends to foreign investors represents an outflow of funds and contributes to the current account deficit.
Therefore, Both Assertion and Reason are true and provide a correct explanation.
