Question

    A set of three statements regarding Balance of Payment

    Surplus are given below. Read each statement and answer whether each statement is true or false? Statement 1 : A balance of payments surplus means the country exports more than it imports Statement 2 : A balance of payments surplus makes a country too dependent on export driven growth. Statement 3 : A balance of payments surplus boosts economic growth in the short term.
    A True, False, True Correct Answer Incorrect Answer
    B False, False, True Correct Answer Incorrect Answer
    C False, True, False Correct Answer Incorrect Answer
    D All are True Correct Answer Incorrect Answer
    E All are False Correct Answer Incorrect Answer

    Solution

    A balance of payments surplus means the country exports more than it imports. Its government and residents are savers. They provide enough capital to pay for all domestic production. They might even lend outside the country. A surplus boosts economic growth in the short term. That's because it's lending money to countries that buy its products. That boosts its factories, allowing them to hire more people. In the long run, the country becomes too dependent on export-driven growth. It must encourage its residents to spend more. A larger domestic market will protect the country from exchange rate fluctuations. It also allows its companies to develop goods and services by using its own people as a test market.

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