Question

    A developing country is facing a balance of payments

    (BoP) crisis due to persistent trade deficits and declining foreign exchange reserves. Which of the following policy measures would be most appropriate to address this issue?  
    A Increasing tariffs on imports to reduce trade deficits Correct Answer Incorrect Answer
    B Printing more domestic currency to finance imports Correct Answer Incorrect Answer
    C Encouraging foreign borrowing to cover the deficit Correct Answer Incorrect Answer
    D Increasing government spending to boost domestic consumption Correct Answer Incorrect Answer
    E Reducing exports to balance trade Correct Answer Incorrect Answer

    Solution

    • A BoP crisis occurs when a country imports more than it exports , depleting foreign reserves. 
    • Raising tariffs discourages imports , reducing trade imbalances. 
    • Printing more currency (B) would worsen inflation . 
    • Foreign borrowing (C) increases debt burden but does not fix trade deficits . 

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