Equilibrium and disequilibrium in balance of payments, Managerial Economics

Equilibrium and Disequilibrium in the Balance of Payments

If on the current account, the value of exports is equal to the value of imports, the balance of payments is said to be equilibrium.  If the two values are not equal, the balance of payments is in disequilibrium.  This could be due to a trade surplus with the value of exports exceeding that of imports or due to a trade deficit with the value of imports exceeding that of exports.

In either case, a balance of payments disequilibrium cannot last indefinitely.  For if this is due to a trade deficit, the country will try and move it.  This is because a persistent trade deficit i.e. a fundamental disequilibrium poses several problems for an economy, namely:

  • In short run a deficit allows a country's peoples to enjoy higher standard of living form the additional imports that would not be possible from that country's output alone in the longer term the decline of the country's industries in the face of international competition will inevitably result in lower living standards.
  • A persistent trade deficit means that the country's foreign exchange reserves are being run down and so it its ability to pay for its imports and settle international debts.
  • Also, a persistent balance of payments trade deficit is regarded as a sign of failure in the country's trade with other countries, and is therefore not politically desirable.
Posted Date: 11/30/2012 5:21:06 AM | Location : United States







Related Discussions:- Equilibrium and disequilibrium in balance of payments, Assignment Help, Ask Question on Equilibrium and disequilibrium in balance of payments, Get Answer, Expert's Help, Equilibrium and disequilibrium in balance of payments Discussions

Write discussion on Equilibrium and disequilibrium in balance of payments
Your posts are moderated
Related Questions
Q. Explain about Utility analysis? A subset of consumer demand theory which analysis consumer behaviour and market demand employing marginal utility and total utility. Key prin

100 schools are given exactly one million dollars each in grant money. They can spend the money on any or all of three programs: math tutoring (math), kickball lessons (kickball),

williamson''s model describe


Short-Term Policies Deflation is a policy of reducing expenditure with the intention of curing a deficit by reducing the demand for imports.  This reduction of expenditure m

Suppose you are an efficient expert hired by a manufacturing firm that uses two inputs, labor (L) and capital (K). The firm produces and sells a given output. You have the followin

MEANING OF MANAGERIAL ECONOMICS Managerial economics which is used synonymously with business economics is a branch of economics which deals with application of microeconomic ana

THEORY OF COMPARATIVE ADVANTAGE In his theory put forward in a book published in 1817, David Ricardo argued that what was needed for two countries to engage in international t

In the city of Gelato the market for ice cream is perfectly competitive. Aggregate demand for ice cream is: where p is the price for one cone of ice cream. All ice cream pr

present a detailed discussion of the principles of managerial economics