Read the following statements - Assertion (A) and Reason (R):
Assertion (A): Sale of second hand machinery to abroad will be a positive item in current account.
Reasoning (R): Machinery is a good and sale leads to inflow of foreign currency.
From the given alternatives choose the correct one:
Answer & explanation
Correct answer: option 1
The correct answer is option 1: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
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Assertion (A): Sale of second-hand machinery to abroad will be a positive item in the current account. This statement is true. The sale of goods, including second-hand machinery, to foreign buyers results in an inflow of foreign currency and is recorded as a credit (positive item) in the current account of the Balance of Payments.
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Reasoning (R): Machinery is a good and sale leads to inflow of foreign currency. This statement is true. Since the sale of machinery involves a transfer of goods in exchange for foreign currency, it indeed results in an inflow of foreign currency.
- Additionally, the reason correctly explains the assertion. The sale of second-hand machinery (a good) leads to an inflow of foreign currency, making it a positive item in the current account.