ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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to reduce a deficit on the current account of the balance ofpayments
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to reduce a surplus on the current account of the balance ofpayments
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to reduce economic growth
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to reduce inflation
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Detailed explanation-1: -Trade deficits occur when a country lacks efficient capacity to produce its own products – whether due to lack of skill and resources to create that capacity or due to preference to acquire from another country (such as to specialize in its own goods, for lower cost or to acquire luxuries).
Detailed explanation-2: -Many economists believe that the most effective way to reduce the current-account deficit is by reducing domestic spending or “absorp-tion” relative to income by increasing the national saving rate.
Detailed explanation-3: -Government can reduce substantial current account deficit by increasing exports or by decreasing imports which can be through import restrictions, quotas, or duties or by subsidizing exports. Manipulating of exchange rate for cheaper exports tends to increase balance of payments through devaluing of domestic currency.
Detailed explanation-4: -Consume less and save more. Depreciate the exchange rate. Tax capital inflows. 06-Nov-2017