BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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No change in BOP
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Increase in Balance of Payments
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Reduction in Balance of Payments
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A and B
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Detailed explanation-1: -A fiscal deficit can be funded by issuing government bonds, increasing taxes, or running down foreign exchange reserves. If a government runs a fiscal deficit for an extended period, it can lead to an accumulation of debt and potentially lead to inflation.
Detailed explanation-2: -Measures To Correct Disequilibrium in the BOP Quotas – Under the quota system, the government may fix and permit the maximum quantity or value of a commodity to be imported during a given period. By restricting imports through the quota system, the deficit is reduced and the balance of payments position is improved.
Detailed explanation-3: -An expansionary monetary policy worsens the balance of payments. An increase in the money supply has three effects: the real interest rate falls causing an outflow of capital, so the BOP worsens. real income rises, so imports go up and the BOP worsens.
Detailed explanation-4: -When the fiscal deficit is high, there is no direct impact on the prices. When the government spends more money than what it earned during the fiscal year, then it is known as fiscal deficit.