ECONOMICS (CBSE/UGC NET)

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ECONOMICS

BALANCE OF PAYMENTS

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Which measure to correct a balance of payments current account deficit would be classified asan expenditure-dampening policy?(Winter 2008)
A
A a reduction in interest rates
B
B an increase in direct taxes
C
C an introduction of foreign exchange controls
D
D an upward revaluation of the currency
Explanation: 

Detailed explanation-1: -Thus, the consumers will reduce consumption overall. This will also include a reduction spending on imports and thus the amount of money flowing out of the country is likely to reduce, leading to a reducing current account deficit.

Detailed explanation-2: -Understanding a Current Account Deficit The country can also use monetary policy to improve the domestic currency’s valuation relative to other currencies through devaluation, which reduces the country’s export costs.

Detailed explanation-3: -(i) Export promotion: Exports should be encouraged by granting various bounties to manufacturers and exporters. (ii) Import: Restrictions and Import Substitution are other measures of correcting disequilibrium. (iii) Reducing inflation: (iv) Exchange control:

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