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Open Economy Macroeconomics — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsOpen Economy Macroeconomics6 Marks
Question
Explain the distinction between autonomous and accommodating' transactions in balance of payments. Also explain the concept of balance of payments 'deficit' in this context.
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Answer

Autonomous Transactions: Are independent of all other transactions in the BOP. These transactions are not influenced by the foreign exchange position of the country. Exports, imports, etc are some examples.
Accommodating Transactions: Are undertaken to cover deficit or surplus in the autonomous transactions. Therefore, their magnitude is determined by the autonomous transactions.
Deficit in BOP is determined only by the autonomous transactions. When autonomous foreign exchange payments exceed autonomous foreign exchange receipts, the excess is called BOP deficit.

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