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
PROBLEMS OF USING PER CAPITA INCOME TO COMPARE STANDARD OF LIVING OVER TIME 1)       The composition of output may change. e.g. more defence-related goods may be produced and

define scarcity and opportunity cost.Show how these concept are useful in managerial decision making

Monetary policy The problems concerning the ability of monetary policy to influence the economy, as for instance the doubts about the ability of lower interest rates to st

No new substitutes for the commodity If some new substitutes for a commodity appear in the market, its demand normally declines. This is quite natural, since with the availabil

When is production profitable according to price-taking firm at profit, break-even or loss? Production profitable at profit, break-even or loss: a. When TR > TC, in that cas

What market type does the company you work for operate under? What makes you think this? Do you think that this is the right market type for your company to operate in? Explain you

Point elasticity The point elasticity of demand is described as the proportionate change in quantity demanded in response to a very small proportionate change in price. The con

Economies and diseconomies of scale are of two types- external andinternal. Internal economies and diseconomies are those which a firm reaps as a result of its own expansion. Conve

Disadvantages The effect on incentives High  progressive tax makes work and extra effort become less valuable. The effect on the willingness to accept risk

Benefits are: 1) People can create their own decisions 2) The government has limited control, which is good for arrangement 3) Gives freedoms like Enterprise, ownership,