(a) Give the meaning of each of the following: (i) balance of trade (ii) balance...
(a) Give the meaning of each of the following:
(i) balance of trade
(ii) balance of payments.
(b)Describe four ways by which an adverse balance of payments may be corrected.
Explanation
(a)(i) Balance of trade; is the relationship between visible exports and imports in a trading year. A favourable balance of trade arises when exports of visible items exceeds imports of visible items. On the other hand, if the visible imports exceed the visible exports, that country is said to have unfavourable balance of trade.
(ii) Balance of payments; is the relationship between all imports and exports of visible and invisible nature. The balance of payments of a country shows her yearly statement of income and expenditure from visible and invisible exports respectively. Balance of payment is divided into current and capital accounts. It can be favourable or adverse.
(b) Ways by which an adverse balance of payments may be corrected are;
(i) Devaluation of local currency that will reduce the value of a country's export and make imports expensive.
(ii) Reduction of government's expenditures.
(iii) Reduction of imports.
(iv) Establishment of import substitution industries.
(v) Control of foreign exchange that will limit imports.