Class 12 Macroeconomics Sandeep Garg Solutions Chapter 12 - Balance of Payments
FAQs on Sandeep Garg Macroeconomics: Class 12 Chapter 12 Solutions
1. What types of problems on Balance of Payments are solved in the Sandeep Garg Class 12 solutions?
The Sandeep Garg solutions for Class 12 Macroeconomics, Chapter 12, provide step-by-step answers for a wide range of questions as per the CBSE 2025-26 syllabus. This includes:
- Theoretical questions defining key terms like Balance of Payments, Current Account, and Capital Account.
- Numerical problems on calculating the Balance of Trade (BoT) and Balance on Current Account.
- Questions that require differentiation between concepts like autonomous and accommodating items.
- Practical problems involving the classification of various economic transactions into the correct BoP accounts.
2. How can students use the Sandeep Garg solutions to solve the unsolved practical questions on Balance of Payments?
To effectively solve the unsolved practicals in Chapter 12, students should first attempt the question on their own. Afterwards, they can refer to the solved examples in the Sandeep Garg solutions that use a similar methodology. The solutions demonstrate the correct format for presenting answers and the precise steps for calculating balances, such as identifying credit and debit items, which can then be applied to the unsolved problems.
3. What is the correct method, as per the Sandeep Garg solutions, to classify transactions into the Current Account and Capital Account of the BoP?
The solutions explain that the primary rule for classification is to determine if a transaction affects a country's assets or liabilities.
- If a transaction does not create a future claim or liability (e.g., export of goods, gifts, tourism expenses), it is recorded in the Current Account.
- If a transaction does cause a change in the assets or liabilities of the country (e.g., borrowing from abroad, foreign investment), it is recorded in the Capital Account.
4. Why are unilateral transfers recorded in the Current Account and not the Capital Account of the BoP?
Unilateral transfers, such as foreign aid, gifts, or personal remittances, are recorded in the Current Account because they are one-way payments. They do not create any corresponding claim or liability for the country receiving or sending them. The defining feature of a Capital Account transaction is that it must alter the asset or liability status of the residents or the government, which these transfers do not.
5. How do the Sandeep Garg solutions for Chapter 12 help differentiate between 'Balance of Trade' (BoT) and 'Balance of Payments' (BoP)?
The solutions clarify this by presenting BoT as a narrow and partial concept, while BoP is a comprehensive one.
- Balance of Trade (BoT) only includes the value of import and export of visible goods (merchandise).
- Balance of Payments (BoP) is a much wider record that includes not only the BoT but also the balance of services (invisibles), unilateral transfers, and all capital account transactions.
6. What is the step-by-step method to calculate a BoP deficit or surplus using the data provided in a typical Class 12 problem?
As demonstrated in the Sandeep Garg solutions, the correct method involves these steps:
- First, identify and sum up all autonomous credit (inflow) transactions, such as exports, foreign investments, and borrowings from abroad.
- Next, identify and sum up all autonomous debit (outflow) transactions, such as imports, investments abroad, and loans to other countries.
- Finally, calculate the overall Balance of Payments by subtracting total autonomous debits from total autonomous credits. A positive result indicates a BoP surplus, while a negative result indicates a BoP deficit.
7. What is the key difference between autonomous and accommodating transactions in the BoP, and how do the solutions explain their significance?
The solutions explain that the key difference lies in the economic motive behind the transaction. Autonomous transactions are undertaken for profit or other economic considerations, independent of the country's BoP position. They are often called 'above the line' items. In contrast, accommodating transactions (or 'below the line' items) are compensatory in nature. They are carried out specifically to cover the surplus or deficit arising from autonomous transactions, such as using or adding to the official foreign exchange reserves.
8. How do the solutions for Chapter 12 explain the determination of the exchange rate in a free market?
The solutions explain that under a flexible exchange rate system, the exchange rate is determined by the market forces of demand and supply for foreign currency. The demand for foreign exchange is created by imports and capital outflows, while the supply comes from exports and capital inflows. The equilibrium exchange rate is established at the point where the demand curve for foreign exchange intersects its supply curve, a concept illustrated with clear diagrams in the solutions.
