Question 3

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January 17, 2023 at 11:27 am #676757
Ritul
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Movements in trade between carty X and country Y have been printerly one ded cang an unfavourabl balance of payments for contry X
Which of the following steps could the government of country X take to correct the disequilibrium in the long run?
Increase the exchange rate
impose import quotes
Borrow money from abroad
Increase the money supply
January 17, 2023 at 11:36 pm #676805
Ken Garrett
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What do you think the correct answer and why?
January 18, 2023 at 6:17 am #676821
Ritul
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I think government of country x will increase the money supply . Correct me if I am wrong
January 18, 2023 at 7:32 am #676837
Ken Garrett
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That is to do with government deficit (borrowing), not foreign exchange deficits or balance of payment problems
Imposing input quotas limits Purchases from abroad so less so less money needs to go abroad therefore helping to correct the balance of payments.
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