Which of the following are methods to balance an adverse Balance of Payments? I) Use of foreign…
Using foreign exchange reserves, borrowing from abroad and attracting foreign investment (I, II and III) supply foreign exchange to finance and balance an adverse Balance of…
Choose your answer
Which of the following are methods to balance an adverse Balance of Payments?
I) Use of foreign exchange reserves
II) Borrowing from abroad
III) Attracting foreign investment
IV) Reducing domestic taxes
Answer and explanation
Correct answer D
Using foreign exchange reserves, borrowing from abroad and attracting foreign investment (I, II and III) supply foreign exchange to finance and balance an adverse Balance of Payments. Reducing domestic taxes (IV) is an expansionary fiscal policy that raises disposable income and import demand, worsening rather than correcting a Balance of Payments deficit.
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Telangana SET (TG SET)