Policies to correct disequilibrium in the balance of payments

Need to know

What you need to know

• BOP disequilibrium refers to a persistent deficit or surplus in the balance of payments, most commonly the current account.
• Expenditure-switching policies manipulate relative prices to make exports cheaper and imports more expensive.
• Expenditure-reducing policies lower aggregate demand to cut overall spending, including on imports.
• Policy choice often involves trade-offs with other objectives like low unemployment and stable economic growth.

Explanation

Policies to correct disequilibrium in the balance of payments

1. BOP disequilibrium refers to a persistent deficit or surplus in the balance of payments, most commonly the current account.
2. Expenditure-switching policies manipulate relative prices to make exports cheaper and imports more expensive.
3. Expenditure-reducing policies lower aggregate demand to cut overall spending, including on imports.
4. Policy choice often involves trade-offs with other objectives like low unemployment and stable economic growth.