One of the ways of correcting a deficit balance of payments is to
ECONOMICS
JAMB 2007
One of the ways of correcting a deficit balance of payments is to
- A. revalue a country's currency
- B. devalue a country's currency
- C. increase imports
- D. reduce exports
Correct Answer: B. devalue a country's currency
Explanation
One way to improve a deficit balance of payment is through devaluation. By devaluing the currency, the value of the home currency goes down against foreign currency. This means imports will become costlier as people will have to pay more for the local currencies to obtain a foreign currency that will be used to transact business. This invariably leads to a reduction in the demand for imports, which is one of the major causes of a deficit balance of trade/payment.
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