ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A reducing income tax rates
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B reducing subsidies to domestic industries
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C reducing the external value of the currency
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D reducing the level of tariffs
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Detailed explanation-1: -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.
Detailed explanation-2: -A BoP deficit can be corrected through an official reserve sale which denotes the sale of foreign exchange by the Reserve Bank. The monetary authorities of a country are the financiers when any deficit arises in the country’s balance of payment.
Detailed explanation-3: -A change in a country’s balance of payments can cause fluctuations in the exchange rate between its currency and foreign currencies. The reverse is also true when a fluctuation in relative currency strength can alter balance of payments.
Detailed explanation-4: -(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: