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 government expenditure on education
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B a rise in the cost of imported raw materials used in domestic production
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C a rise in the foreign ownership of domestic companies
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D a rise in the total wages earned by nationals working abroad
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Detailed explanation-1: -Inflation i.e. continuous rise in prices in a country makes foreign goods relatively cheaper. It increases imports which cause a deficit in the Balance of Payment.
Detailed explanation-2: -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-3: -One potential cause of a persistent current account deficit is that of sustained economic growth. Growth in an economy is indicated by a sustained rise in its real GDP, which in turn must mean that the total income of the nation has increased.
Detailed explanation-4: -Exports, earnings on investments abroad, and incoming transfer payments (aid and remittances) increase a country’s current account surplus. Imports, foreign investors’ earnings on investments in the country, and outgoing transfer payments lower a country’s current account surplus.