Q.Suppose that, the Balance of Trade of a nation exhibits a deficit of ₹ 50,000 crore. The import of visible items are five times of the exports of visible items. The value of exports of visible items would be ₹ ________ crore. (Choose the correct alternative to fill up the blank) (A) 20,000 (B) 10,000 (C) 12,500 (D) 20,300
🔒You're viewing a preview — the full solution, concept, methods & PYQ mapping are locked.
🔒 Start your 14-day free trial to unlock the full solution →Part (a)Concept understanding — Current Account Deficit
The Current Account Deficit: Spending More Than You Earn, But With a Country
Think of your monthly allowance. If you spend ₹2,000 but only earn ₹1,500, you have a deficit of ₹500. You cover that gap by borrowing from a friend or dipping into savings. A country does the same thing on a massive scale — that's the Current Account Deficit (CAD).
The Everyday Intuition
A country's current account is like its income-and-expenditure diary with the rest of the world. It records three main things:
- Goods (exports and imports of physical items — phones, wheat, oil)
- Services (IT exports, tourism, shipping)
- Transfers (money sent home by workers abroad, foreign aid)
When the total money flowing out for imports, services, and transfers exceeds the money flowing in from exports, services, and transfers, you have a deficit. The country is a net borrower from the world.
A deficit is not automatically "bad." It means the country is consuming or investing more than it produces — which can be fine if the borrowed money goes into productive assets (factories, roads) that generate future income.
The Precise Definition (NCERT Style)
The current account is part of the Balance of Payments (BoP) — the record of all economic transactions between residents of a country and the rest of the world.
Current Account Balance=(X−M)+(Xservices−Mservices)+Net Transfers+Net Income
Where:
- X = Exports of goods
- M = Imports of goods
- Xservices = Exports of services (e.g., Indian IT firms selling software to the US)
- Mservices = Imports of services (e.g., Indians using Netflix)
- Net Transfers = Money received from abroad minus money sent abroad (e.g., remittances from Indians working in the Gulf)
- Net Income = Earnings from investments abroad minus payments to foreign investors (e.g., dividends paid to a Japanese company that owns a factory in India)
If this total is negative, the country has a Current Account Deficit.
Why It Matters (The "So What?")
A CAD must be financed. How? By borrowing from abroad or selling assets to foreigners. This shows up on the other side of the BoP — the Capital Account. If a country runs a CAD of 50billion,itmustattract50 billion of foreign investment (FDI, FII, loans) to balance the books.
Three things to watch:
-
Sustainability — A small CAD (say 2-3% of GDP) is normal for a growing economy like India. A large, persistent CAD (5%+ of GDP) signals trouble: the country is living beyond its means and may struggle to repay.
-
Currency pressure — To finance a CAD, the country needs foreign currency (dollars). High demand for dollars can weaken the rupee. A weaker rupee makes imports costlier (inflation) but helps exports.
-
The J-Curve effect — When the rupee depreciates, the trade deficit often worsens initially before improving. Why? Imports are priced in dollars and become more expensive in rupees immediately, while export volumes take time to respond. The graph of the trade balance over time looks like a "J" — dipping first, then rising. …
Part (b)Concept understanding — Current Account Deficit
The Current Account Deficit: Spending More Than You Earn, But With a Country
Think of your monthly allowance. If you spend ₹2,000 but only earn ₹1,500, you have a deficit of ₹500. You cover that gap by borrowing from a friend or dipping into savings. A country does the same thing on a massive scale — that's the Current Account Deficit (CAD).
The Everyday Intuition
A country's current account is like its income-and-expenditure diary with the rest of the world. It records three main things:
- Goods (exports and imports of physical items — phones, wheat, oil)
- Services (IT exports, tourism, shipping)
- Transfers (money sent home by workers abroad, foreign aid)
When the total money flowing out for imports, services, and transfers exceeds the money flowing in from exports, services, and transfers, you have a deficit. The country is a net borrower from the world.
A deficit is not automatically "bad." It means the country is consuming or investing more than it produces — which can be fine if the borrowed money goes into productive assets (factories, roads) that generate future income.
The Precise Definition (NCERT Style)
The current account is part of the Balance of Payments (BoP) — the record of all economic transactions between residents of a country and the rest of the world.
Current Account Balance=(X−M)+(Xservices−Mservices)+Net Transfers+Net Income
Where:
- X = Exports of goods
- M = Imports of goods
- Xservices = Exports of services (e.g., Indian IT firms selling software to the US)
- Mservices = Imports of services (e.g., Indians using Netflix)
- Net Transfers = Money received from abroad minus money sent abroad (e.g., remittances from Indians working in the Gulf)
- Net Income = Earnings from investments abroad minus payments to foreign investors (e.g., dividends paid to a Japanese company that owns a factory in India)
If this total is negative, the country has a Current Account Deficit.
Why It Matters (The "So What?")
A CAD must be financed. How? By borrowing from abroad or selling assets to foreigners. This shows up on the other side of the BoP — the Capital Account. If a country runs a CAD of 50billion,itmustattract50 billion of foreign investment (FDI, FII, loans) to balance the books.
Three things to watch:
-
Sustainability — A small CAD (say 2-3% of GDP) is normal for a growing economy like India. A large, persistent CAD (5%+ of GDP) signals trouble: the country is living beyond its means and may struggle to repay.
-
Currency pressure — To finance a CAD, the country needs foreign currency (dollars). High demand for dollars can weaken the rupee. A weaker rupee makes imports costlier (inflation) but helps exports.
-
The J-Curve effect — When the rupee depreciates, the trade deficit often worsens initially before improving. Why? Imports are priced in dollars and become more expensive in rupees immediately, while export volumes take time to respond. The graph of the trade balance over time looks like a "J" — dipping first, then rising. …
Part (a)
Balance of Trade = Exports − Imports of visible items. Let exports =X; imports =5X. A deficit of ₹50,000 crore means: …
- Part (a): X−5X=−50000⇒X=12500 → exports = ₹12,500 crore, Option (C).
- Part (b): Gifts/remittances sent abroad = unilateral transfer, an outflow → debit, current account, Option (D).
Part (a)
Balance of Trade=Exports of visible items−Imports of visible items
Let exports of visible items be X crore. Imports are five times exports, so imports =5X. A deficit of ₹50,000 crore makes the balance negative:
X−5X=−50000⇒−4X=−50000⇒X=450000=12500 …
- BSEH Haryana Senior Secondary Class 12 (Commerce) 2026Set ANNUAL1 markMCQQ.Which items is included in the Balance of Trade?(a) Visible items(b) Invisible items(c) Capital transfer(d) All of the above
›Reveal solutionSolution
Balance of Trade = visible goods only.
Balance of Trade (BoT) is the difference between the value of visible exports and visible imports — i.e. tangible goods only.
…
- BSEH Haryana Senior Secondary Class 12 (Commerce) 2025Set ANNUAL1 markMCQQ.Rest of the world sector is the sector, which :(a) Produce the things(b) Consume the things(c) Borrow the money(d) Import & Export of things
›Reveal solutionSolution
The rest-of-the-world sector deals in imports and exports.
In an open-economy circular flow, the rest-of-the-world (external/foreign) sector represents all transactions of the domestic economy with other countries. Its characteristic activity is the import and export of goods and services (and related capital flows). Produ …
- BSEH Haryana Senior Secondary Class 12 (Commerce) 2024Set ANNUAL1 markMCQQ.In which of the following categories are the Economic Transaction of Balance of Payment divided :(a) Visible items(b) Invisible items(c) Capital transfer(d) All of the above
›Reveal solutionSolution
BoP covers visible, invisible and capital transactions.
The Balance of Payments records all economic transactions of a country with the rest of the world, classified into: visible items (goods), invisible items (services) and capital transfers (flo …
- BSEH Haryana Senior Secondary Class 12 (Commerce) 2020Set ANNUAL1 markMCQQ.Balance of Payments includes :(a) Visible items(b) Invisible items(c) Capital transfer(d) All of the above
›Reveal solutionSolution
BoP includes visible, invisible and capital transactions.
The Balance of Payments is the complete record of all economic transactions of a country with the rest of the world; it covers visible items (goods), invisible items (services) and …
🎓Unlock everything free for 14 days
- ✓Full step-by-step solutions
- ✓Concept-first explanations
- ✓Methods, shortcuts & mistakes
- ✓PYQ mapping + timed mock tests
Full access for 14 days. No credit card required.