Asked by: Preslava Susi
asked in category: General Last Updated: 6th June, 2020

How can disequilibrium in balance of payment be corrected?

Since most of balance of payments difficulties is the result of domestic inflation, the disequilibrium may be corrected by disinflation (eliminating the inflationary gap and reducing demand to the level of full employment) or at least by controlling inflation and adjusting the exchange rate.

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Similarly one may ask, what is disequilibrium in balance of payment?

Disequilibrium is a situation where internal and/or external forces prevent market equilibrium from being reached or cause the market to fall out of balance. Disequilibrium is also used to describe a deficit or surplus in a country's balance of payments.

Similarly, what are the causes of balance of payment imbalances? 3 Important Causes of Deficit in Balance of Payments

  • These factors can be divided into three groups:
  • (i) Developmental activities:
  • (ii) High rate of inflation:
  • (iii) Cyclical fluctuations:
  • (iv) Change in Demand:
  • (v) Import of Services:
  • (i) Political Instability:
  • (ii) Political disturbances:

Keeping this in consideration, how can balance of payment be improved?

Instead, the country may be tempted to impose measures to restrict imports and discourage capital outflows in order to improve the balance of payments situation. These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers.

What is imbalance of payment?

A balance of payments deficit means the country imports more goods, services and capital than it exports. It must borrow from other countries to pay for its imports. A balance of payments surplus means the country exports more than it imports. It provides enough capital to pay for all domestic production.

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