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      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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