Measure to correct disequilibrium in the balance of payment.
(i) Export promotion:
Exports should be encouraged by granting various bounties to manufacturers and exporters. At the same time, imports should be discouraged by undertaking import substitution and imposing reasonable tariffs.
(ii) Import:
Restrictions and Import Substitution are other measures of correcting disequilibrium.
(iii) Reducing inflation:
Inflation (continuous rise in prices) discourages exports and encourages imports. Therefore, government should check inflation and lower the prices in the country.
(iv) Exchange control:
Government should control foreign exchange by ordering all exporters to surrender their foreign exchange to the central bank and then ration out among licensed importers.
The disequilibrium can be corrected using policies like currency devaluation, trade policy measures, exchange control and demand management. These policies aim at promoting exports, reducing imports and controlling foreign capital flows. However, these policies also have their costs and limitations.
Furthermore, changes in an exchange rate when a country's currency is revalued or devalued can cause disequilibrium. Other factors that could lead to disequilibrium include inflation or deflation, changes in the foreign exchange reserves, population growth, and political instability.
It can be resolved either by allowing market forces to redistribute themselves into a new equilibrium or through government intervention. The two resolutions stem from two different economic theories: Laissez-faire economics. Keynesian economics.
Main types of disequilibrium in the balance of payments are: i. Cyclical Disequilibrium ii. Structural Disequilibrium iii. Short-run Disequilibrium iv.
The balance of payments (BOP) is the method by which countries measure all of the international monetary transactions within a certain period. The BOP consists of three main accounts: the current account, the capital account, and the financial account.
Disequilibrium is a condition that causes dizziness and difficulty balancing. It often develops as people get older. Bodily functions that help you stabilize and orient yourself in space don't work as well over time.
The adjustment process starts with a trivial equilibrium with a low enough price level and complete demand rationing on all markets. Along the path followed by the adjustment process, initially all relative prices of the non-numeraire commodities are kept fixed and the price level is increased.
The balance of payment of a country must always be in equilibrium, a surplus on one account must be met with a deficit of equal magnitude on the other. Thus, the sum of the capital account and the current account must always be zero leading to a balance in the BOP in accounting sense.
High outflow of foreign exchange to meet import demands like technology, machines, and equipment can lead to BoP deficit. Sustained rise in a country's prices can often make foreign products cheaper, leading to a high volume of imports. Unstable tax structures, change in government, etc.
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