ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A when it raises its rate of income tax
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B when it reduces tariffs on its imports
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C when it revalues its currency
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D when it removes export subsidies
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Detailed explanation-1: -To control the deficit, a country can take the following steps: Attract more foreign investment. Increase exports. Decrease unnecessary imports.
Detailed explanation-2: -Measuring the current account A deficit then means that the country is importing more goods and services than it is exporting-although the current account also includes net income (such as interest and dividends) and transfers from abroad (such as foreign aid), which are usually a small fraction of the total.
Detailed explanation-3: -A current account deficit indicates that a country is importing more than it is exporting. Emerging economies often run surpluses, and developed countries tend to run deficits. A current account deficit is not always detrimental to a nation’s economy-external debt may be used to finance lucrative investments.
Detailed explanation-4: -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.