(a)

Define Accommodating Items under Balance of Payments (BoP).

(b)

“Economic transactions that are recorded in the current account can be classified in two parts — merchandise and invisibles. Net inflows from both the transactions are referred to as Trade Surplus.”

(b)

Do you agree with the given statement ? Give valid arguments in support of your answer.

(a) Accommodating items are those international economic transactions which are undertaken (by competent authorities) to correct the situation of surplus/deficit in Balance of Payments (BoP).(b) No. The current account includes transactions relating to merchandise (visible items) and invisibles. However, trade balance includes merchandise transactions only. Additionally, trade surplus refers to a situation where the value of exports of merchandise exceeds the value of imports of merchandise. Hence, net inflows from both merchandise and invisibles together determine the current account balance, not Trade Surplus.