Match the following :
List – I List – II a. Sum of price elasticity of demand for exports and imports greater than unity. 1. J-curve effect b. Balance of Payments is the difference between National Income and expenditure 2. Import quota systems c. Empirical evidence showing lower short run price elasticities of exports and imports. 3. Marshall-Lerner condition d. Method to cut down imports 4. Absorption approach
Select correct code :
Codes :
a-3, b-4, c-1, d-2
Economics Matching Solution
This question requires matching economic concepts from List I to their correct definitions or examples in List II. We will analyze each item:
Matching Item a: Sum of elasticities
a. Sum of price elasticity of demand for exports and imports greater than unity.
This condition relates to the trade balance response to currency depreciation. When the sum of elasticities is greater than one, depreciation improves the trade balance. This is known as the Marshall-Lerner condition.
Therefore, a matches with 3 (Marshall-Lerner condition).
Matching Item b: Balance of Payments definition
b. Balance of Payments is the difference between National Income and expenditure
This statement relates the Balance of Payments (or trade balance) to the difference between national income and domestic spending (absorption). This is the core idea of the Absorption approach.
Therefore, b matches with 4 (Absorption approach).
Matching Item c: Short-run elasticities
c. Empirical evidence showing lower short run price elasticities of exports and imports.
Empirical findings often show that price elasticities are low in the short run. This leads to a situation where a currency depreciation might initially worsen the trade balance before improving it. This phenomenon is called the J-curve effect.
Therefore, c matches with 1 (J-curve effect).
Matching Item d: Method to cut imports
d. Method to cut down imports.
Direct government policies aimed at reducing imports include measures like tariffs or quotas. An Import quota is a specific limit on the quantity of goods that can be imported.
Therefore, d matches with 2 (Import quotas).
Final Matching Summary
Based on the analysis, the correct matching is:
- a - 3 (Marshall-Lerner condition)
- b - 4 (Absorption approach)
- c - 1 (J-curve effect)
- d - 2 (Import quotas)
This corresponds to the code a-3, b-4, c-1, d-2.
Important Questions from Balance of payments (BOP)
- If there is a balance of payments deficit then in a floating exchange rate system :
- Devaluation, will improve the balance of payment deficit, if sum of elasticity of exports and imports of the devaluing country is :
- Which amongst the following is included in the Capital account of the Balance of payments ?
I. Foreign loans
II. Foreign Direct Investment
III. Private Remittances
Choose the correct answer from the codes below :
Codes : - A deficit or surplus in the India’s balance of payments is measured by the net balance of
Match the items of List I with the items of List II and choose the correct answer from the code given below.
List I
List II
(a)
Balance of trade
(i)
Imports and exports of goods and services
and unilateral transfer of goods and services(b)
Current account
(ii)
Transactions leading to changes in the
financial assets and liabilities of a country(c)
Balance of payments
(iii)
All economic transactions between a country's
residents and residents of other countries(d)
Capital account
(iv)
Value of exports and imports of country
