ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A an appreciation of the country’s currency
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B substantial foreign investment by the country’s residents
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C the introduction of controls on capital outflows
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D the introduction of import quotas
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Detailed explanation-1: -A balance of payments disequilibrium can occur when there is an imbalance between domestic savings and domestic investments. A deficit in the current account balance will result if domestic investments is higher than domestic savings since the excess investments will be financed with capital from foreign sources.
Detailed explanation-2: -The main cause of the disequilibrium in the balance of payments arises from imbalance between exports and imports of goods and services. When for one reason or another exports of goods and services of a country are smaller than their imports, disequilibrium in the balance of payments is the likely result.
Detailed explanation-3: -Disequilibrium in the BoP can cause an increase or a decrease in the official reserves, depending on whether there is a deficit or a surplus.
Detailed explanation-4: -Such causes for disequilibrium in BOP are listed below: (i) Economic Factors: (a) Imbalance between exports and imports. (ii) Political Factors: (iii) Social Factors: Following remedial measures are recommended: (i) Export promotion: (ii) Import: (iii) Reducing inflation: More items