Ch29 Policies to correct Balance of Payments Deficit

Front

What indicates stability in the balance of payments?

Back

Stability in the balance of payments occurs when, over a few years taken together, payments and receipts approximately balance.

Front

What indicates an imbalance in the current account of the balance of payments?

Back

An imbalance occurs when there is a persistent deficit or surplus of receipts over payments over a few years.

Front

How does contractionary fiscal policy affect aggregate demand and imports?

Back

A contractionary fiscal policy reduces aggregate demand and the demand for goods and services, including imports.

Front

How does expansionary fiscal policy affect aggregate demand and imports?

Back

An expansionary fiscal policy increases aggregate demand, including consumer spending on imports.

Front

What is the effect of an increase in the rate of interest on consumer spending and imports?

Back

An increase in the rate of interest reduces consumer spending and the demand for imports, helping to correct a current account deficit.

Front

What is the effect of a reduction in the rate of interest on consumer spending and imports?

Back

A reduction in the rate of interest increases consumer spending, including spending on imports, helping to correct a current account surplus.

Front

What is the aim of supply-side policies?

Back

Supply-side policies aim to improve the competitiveness of domestic businesses, increasing exports and reducing a deficit in the current account.

Front

What are protectionist measures and their intended effect?

Back

Protectionist measures, such as tariffs and quotas, aim to reduce imports and transfer demand to domestically-produced substitutes, reducing the deficit on the current account.

Front

What could be the impact of a reduction in imports of capital goods on Pakistan's economy?

Back

A reduction in imports of capital goods could lead to a reduction in Pakistan's rate of economic growth.

Front

What are remittances and their significance to Pakistan's economy?

Back

Remittances are transfers of money made by Pakistani workers or residents abroad back to Pakistan, essential for the stability of the current account of the balance of payments.