ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A to lower inflation
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B to lower unemployment
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C to raise the economic growth rate
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D to raise the exchange rate
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Detailed explanation-1: -There are certain negative effects of the current account surplus. Sometimes a high share of goods and services is exported outside rather than meeting the demand of the home country. This leads to a major fall in the supply side of the economy, leading to a rise in prices.
Detailed explanation-2: -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-3: -As discussed earlier, large current account deficits raise the risk of a sudden stop-and experience has shown that these episodes often lead to large financial disruptions.
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.