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Question
Assertion (A): External Assistance is recorded in the Current Account of the Balance of Payments of a nation.
Reason (R): External Assistance includes bilateral and multilateral loans received/extended by a nation.
Options
Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
Assertion (A) is true, but Reason (R) is false.
Assertion (A) is false, but Reason (R) is true.
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Solution
Assertion (A) is false, but Reason (R) is true.
Explanation:
'External assistance' refers to bilateral and multilateral loans that a country gets or provides to other countries; thus, the reason is true. However, these loans indicate capital inflows or outflows rather than routine income or expenditure on commodities and services. As a result, they are recorded in the Balance of Payments’ Capital Account rather than the Current Account, which covers trade in commodities, services, income, and transfers. Therefore, the assertion is false.
