Question

Define Accommodating Items under Balance of Payments (BoP).

Hint:

Accommodating items are the transactions that the authorities undertake to correct a deficit or surplus in the balance of payments.

Answer 1

Step 1: Understand the term:
The balance of payments (BoP) records all economic transactions between a country and the rest of the world.
Its items are of two kinds. Autonomous items come from the normal needs of trade and investment. Accommodating items come after them.

Step 2: Recall the definition:
Accommodating items are those international economic transactions which are undertaken to correct the surplus or deficit in the BoP.
They are also called compensatory items, because they make up for the gap left by the autonomous items.

Step 3: Say who undertakes them:
They are undertaken by the competent authorities, that is the central bank and the government. Examples are the use of foreign exchange reserves, or borrowing from the IMF.
Their size depends on the gap in the BoP, so they are decided by the BoP position itself.

Final Answer:
Accommodating items are the international economic transactions undertaken by the competent authorities to correct a surplus or a deficit in the BoP.