Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

 
It does not consider the significance of the elasticity‘s of 
reciprocal demand. 

---

 
This theory is good in long run and lacks its significance in 
short run. 
Check your progress: 
1) What is PPP theory? 
 
 
 
 
 
 
 
11.3 DISEQUILIBRIUM IN BALANCE OF PAYMENT 
 
Every country deals with international trade. Number of 
transactions take place while dealing in international business. 
These transactions need to be recorded for knowing the position of 
economy. Therefore the systematic record of the these transactions 
(import and Export) is recorded in the accounting form. When only 
merchandise goods or visible goods entries are recorded, it is 
termed as Balance Of Trade. It may show surplus or deficits. When 
exports exceed import it shows SURPLUS and when imports 
exceed exports it shows DEFICIT. In broader sense not only goods 
but also services are included in systematic way, it is known as 
Balance Of Payment.. 
Balance of Payment is the comprehensive term as in it 
includes international transactions of both visible and invisible 
goods.
― BOP is a systematic record of economic transaction between 
the residents of the reporting country and the residents of 
foreign countries during a given period of time.
” 
 
It includes not only the visible but also invisible goods. It 
means it does consider not only the merchandise goods but also 
the services. Therefore it gives true picture of the economy. It is the 
difference between the outflow of funds and inflow of funds 
(Payment and Receipt). Theoretically it should get balance but 
practically it does not tally due to the chances of omission and 
errors.