Assertion (A) : ‘Balance of Payments’ represents a better picture of a country’s economic transactions with the reset of the world than the ‘Balance of Trade’. Reason (R) : ‘Balance of Payments’ takes into account the exchange of both visible and invisible items whereas ‘Balance of Trade’ does not.

Both Assertion and Reason are true, and Reason correctly explains the Assertion. The Balance of Trade (BoT) is simply the difference between exports and imports of physical goods (visible items) and thus is a narrow measure of trade in merchandise [1]. By contrast, the Balance of Payments (BoP) is a comprehensive record that includes visibles (merchandise), invisibles (services, investment income, remittances) and capital/financial transactions, and therefore captures all economic transactions with the rest of the world [3]. Because BoP incorporates both visible and invisible flows as well as capital movements, it provides a fuller, more accurate picture of a country’s external economic position than the BoT, making R the correct explanation of A.

Sources

1. [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 16: Balance of Payments > 2.1. Balance of Visibles or Balance of Trade (BOT) > p. 471
2. [2] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 16: Balance of Payments > 2.1. Balance of Visibles or Balance of Trade (BOT) > p. 472
3. [3] https://rlacollege.edu.in/pdf/Eco_Presentations/Principlesofmacroeconomics/Balance-of-Payment.pdf