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2019 WAEC Commerce Theory Country X is facing a situation where its total payments to other countries are greater...

Commerce
WAEC 2019

Country X is facing a situation where its total payments to other countries are greater than its total earnings from abroad.

(a) State the term that relates to the above situation.

(b) Explain six measures the country could take to correct the situation 

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Explanation

(a) The situation is referred to as an unfavourable/adverse/deficit balance of payment.

(b) Measures to correct an unfavourable balance of payment:

i. Restricting imports: if imports are more than exports, the country should restrict imports to reduce its citizens demand imported goods and services. Such restrictions may take the form of a total ban, quotas, and increased import duties.

ii. Increasing exports: A country may resort to measures that would encourage its citizens to produce for export whereby its earnings from exports would be used to offset its import bills

iii. Exchange control: The government of a country may introduce measures that would regulate the amount of foreign exchange available for importers.

iv. Devaluation: A country may reduce the official rate of exchange of its currency with other countries. The effect of this is to make exports cheaper and imports expensive, thus increasing the demand for her exports.

v. Borrowing: A country may borrow to solve its balance of payment problems. Such loans should go to finance home production for export

vi. Sale of gold reserves/foreign investment: A country may sell part of its gold reserves as well as other securities so as to finance its balance of payments.

vii. Gift or aid: A country may seek assistance from friendly countries and donor agencies to correct its adverse balance of payments.

viii. Drawing on foreign reserves: A country can make drawings on its external reserves to solve its balance of payment problems

ix. Import substitution: A country may encourage domestiC producers to produce close substitutes imported products to discourage importation of such goods. 


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WAEC May/June 2024 - Practice for Objective & Theory - From 1988 till date, download app now - 99995
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WAEC May/June 2024 - Practice for Objective & Theory - From 1988 till date, download app now - 99995