Macro

Balance of Payments

Medium

Autonomous and Accommodating Transactions

International economic transactions are called autonomous when transactions are made due to some reason other than to bridge the gap in the balance of payments, that is, when they are independent of the state of BoP. One reason could be to earn profit. These items are called 'above the line' items in the BoP. The balance of payments is said to be in surplus (deficit) if autonomous receipts are greater (less) than autonomous payments.

Accommodating transactions (termed 'below the line' items), on the other hand, are determined by the gap in the balance of payments, that is, whether there is a deficit or surplus in the balance of payments. In other words, they are determined by the net consequences of the autonomous transactions. Since the official reserve transactions are made to bridge the gap in the BoP, they are seen as the accommodating item in the BoP.

Balance of payments of an economy is in surplus when__________

Autonomous receipts > Accommodating receipts

accommodating receipts > accommodating payments

total international receipts > total international payments

autonomous receipts > autonomous payments

✅ Correct Option: 4

Option 1 -> Comparing autonomous receipts with accommodating receipts is not the correct criterion for determining BOP surplus.

Option 2 -> Accommodating transactions are meant to finance deficits or absorb surpluses; comparing accommodating receipts and payments does not determine BOP status.

Option 3 -> Technically, total receipts always equal total payments in BOP accounting due to double-entry bookkeeping, so this cannot determine surplus.

Option 4 -> When autonomous receipts (exports, foreign investments inflow, remittances) exceed autonomous payments (imports, investments outflow), it indicates a BOP surplus.

Hence, 4. autonomous receipts > autonomous payments -> A Balance of Payments surplus occurs when autonomous transactions (those undertaken for profit or economic motives, independent of BOP state) show receipts exceeding payments. This means the economy is earning more from its normal international transactions than it is spending. The excess is absorbed through accommodating transactions like an increase in foreign exchange reserves. Autonomous items are "above the line" items in BOP accounting, and their net balance determines whether there is a surplus or deficit -> correct

Question 41

Which of the following is not an autonomous transaction of the balance of payments?

Question 42

Suppose the central bank of an economy records a net increase in the foreign exchange reserves for a given quarter. How will this be reflected in the balance of payments account of this economy?

Question 44

In a situation of Balance of payments deficit, which of the following will be true?

Question 45

Which of the following is incorrect about accommodating transactions of the BoP?

Balance of payments of an economy is in surplus when__________

Solution

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