ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A a reduction in government subsidies to exporters
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B a reduction in the rate of interest
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C a rise in direct taxation
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D incentives to attract foreign capital
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Detailed explanation-1: -Quotas – Under the quota system, the government may fix and permit the maximum quantity or value of a commodity to be imported during a given period. By restricting imports through the quota system, the deficit is reduced and the balance of payments position is improved.
Detailed explanation-2: -Among possible expenditure-switching policies, devaluation or revaluation is the most focused policy to affect current account balances and the equilibrium level of output.
Detailed explanation-3: -These are policies designed to lower real incomes and aggregate demand and thereby cut the demand for imports. E.g. higher direct taxes, cuts in government spending or an increase in monetary policy interest rates.
Detailed explanation-4: -Fiscal policy is defined as the policy under which the government uses the instrument of taxation, public spending and public borrowing to achieve various objectives of economic policy. Simply put, it is the policy of government spending and taxation to achieve sustainable growth.