(a) What is meant by devaluation?
(b) Explain the measures by which a country can correct its balance of payments deficit.
(b) Explain the measures by which a country can correct its balance of payments deficit.
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Correct Answer: Option n
Explanation:
(a)Devaluation is the reduction in the value of the country's currency in terms of other currencies. Devaluation cheap-ens export and makes imports expensive, thus improving the balance of payments.
(b) Measures for correcting balance of payments are:(i) Export promotion measures: This-is the granting of tax concessions to export based industries thereby reducing export duties to make export cheaper and to earn more revenue.
(ii) Borrowing: A country can borrow money from international financial institutions, e.g. IMF to correct the balance of payment deficit.
(iii) Selling investments abroad: This will enable the country to acquire the foreign exchange it needs to pay for its imports.
(iv) Devaluation: The country can devalue her currency in relation to other currencies to make exports cheaper and imports dearer.
(v) Imposition of tariffs on imports: The balance of payment deficit can be corrected by imposing tariffs on import or total embargo.
(vi) Import substitution measures: The government can encourage industries to replace the goods bought from foreign countries.
(vii) Grants and aids: Grants and aids can be obtained from friendly nations to offset the deficit.
(a)Devaluation is the reduction in the value of the country's currency in terms of other currencies. Devaluation cheap-ens export and makes imports expensive, thus improving the balance of payments.
(b) Measures for correcting balance of payments are:(i) Export promotion measures: This-is the granting of tax concessions to export based industries thereby reducing export duties to make export cheaper and to earn more revenue.
(ii) Borrowing: A country can borrow money from international financial institutions, e.g. IMF to correct the balance of payment deficit.
(iii) Selling investments abroad: This will enable the country to acquire the foreign exchange it needs to pay for its imports.
(iv) Devaluation: The country can devalue her currency in relation to other currencies to make exports cheaper and imports dearer.
(v) Imposition of tariffs on imports: The balance of payment deficit can be corrected by imposing tariffs on import or total embargo.
(vi) Import substitution measures: The government can encourage industries to replace the goods bought from foreign countries.
(vii) Grants and aids: Grants and aids can be obtained from friendly nations to offset the deficit.