ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A a rise in aggregate monetary demand in the country
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B a rise in the country’s aggregate supply
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C a rise in the country’s unemployment
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D a rise in the international value of the country’s currency
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Detailed explanation-1: -When exports exceed imports, the nation has a trade surplus, and when imports exceed exports, the nation has a trade deficit. Factor endowments, such as labor, affect the balance of trade by what is produced and by whom. International trade is largely affected by the demand for a nation’s goods and services.
Detailed explanation-2: -A deficit in the balance of payments leads to a higher demand for foreign currency to the detriment of national currency which would depreciate in this situation. However, an exceeding account balance involves a high amount of foreign currency for which the national currency would be exchanged.
Detailed explanation-3: -Note. A balance of payments deficit means the country imports more goods, services, and capital than it exports. It must borrow from other countries to pay for its imports.
Detailed explanation-4: -If a country can attract more financial flows (either short-term portfolio investment or long-term direct investment), then these flows on the financial account will enable the country to run a larger current account deficit.