Assertion (A): A country with a trade deficit can still have a surplus on its current account.
Reason (R): Its net invisibles can be positive and larger than its trade deficit.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Both (A) and (R) are true and (R) is the correct explanation of (A).
Assertion (A): A country with a trade deficit can still have a surplus on its current account. — True. The current account has a second part, invisibles, besides trade in goods.
Reason (R): Its net invisibles can be positive and larger than its trade deficit. — True. Earnings from services, transfers and income can be large.
Why R explains A?
The current account balance = trade balance + net invisibles. If net invisibles are positive and bigger than the trade deficit, the sum is positive. For example, a trade deficit of 40 with net invisibles of 60 gives a current account surplus of 20.
NCERT (2026-27): “Balance on Current Account … Net Invisibles is the difference between the value of exports and value of imports of invisibles of a country in a given period of time. …”
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