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 …
- JAC Jharkhand Intermediate Class 12 (Commerce) 2026Set ANNUAL1 markMCQQ.What is the balance of international transactions of goods and services called?(a) Market equilibrium(b) Consumer's equilibrium(c) Balance of trade(d) Balance of payment
›Reveal solutionSolution
The balance of goods-and-services trade is the balance of trade.
The balance of a country's international transactions of goods and services (exports minus imports) is the balance of trade component of the current account. It differs from the balance of payment, which is the complete record of all economic transactions — goods, services and capital — with the rest of the …
- JAC Jharkhand Intermediate Class 12 (Commerce) 2025Set ANNUAL1 markMCQQ.If the volume of import and export of a country in a year are respectively Rs. 250 crore and Rs. 300 crore, what is the trade balance?(a) Rs. 200 crore(b) Rs. 300 crore(c) Rs. 50 crore(d) Rs. – 50 crore
›Reveal solutionSolution
Trade balance = exports − imports = 300 − 250 = Rs. 50 crore.
The balance of trade is the value of exports of goods minus the value of imports of goods:
BOT = Exports − Imports = Rs. 300 crore − Rs. 250 crore = Rs. 50 crore. …
- JAC Jharkhand Intermediate Class 12 (Commerce) 2024Set ANNUAL1 markMCQQ.One of the reasons for the flow of foreign exchange in India is(a) Foreign gifts(b) Foreign Direct Investment(c) Export of goods and services(d) All of these
›Reveal solutionSolution
All three bring foreign exchange into India.
Foreign exchange flows into a country through any transaction in which foreigners pay it. Export of goods and services earns foreign exchange; foreign direct investment brings in foreign capital; and foreign gifts/remittances are transfers re …
- JAC Jharkhand Intermediate Class 12 (Commerce) 2023Set ANNUAL1 markMCQQ.Balance of trade means(a) Import & export of goods(b) Capital transactions(c) Total debit and credit(d) All of these
›Reveal solutionSolution
Balance of trade = import and export of goods only.
The balance of trade is the difference between the value of a country's exports and imports of goods (visible/merchandise items) during a year. It does not include trade in services or capital transactions, which are part of th …
- JAC Jharkhand Intermediate Class 12 (Commerce) 2023Set ANNUAL1 markMCQQ.Which of the following items is a component of current account of balance of payment?(a) Foreign direct investment(b) Foreign aid(c) Foreign debt(d) Export of goods
›Reveal solutionSolution
Export of goods is a current-account item.
The current account of the balance of payments records transactions in goods, services, income and current transfers. Export of goods is a visible trade item belonging to the current account. Foreign direct investment, foreign aid and foreign debt involve movements of capita …
- JAC Jharkhand Intermediate Class 12 (Commerce) 2023Set ANNUAL1 markMCQQ.Which of the following is the economic reason of imbalance in Balance of payments?(a) Political instability(b) Business cycle(c) International relationship(d) None of these
›Reveal solutionSolution
The business cycle is an economic reason for BOP imbalance.
Causes of disequilibrium in the balance of payments may be economic or non-economic. Business cycles (periods of boom and recession) change a country's exports and imports and thus its BOP — a boom abroad raises exports, a domestic boom raises imports — so it is an economic cause. Political instabili …
🎓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.