| I. If international reserves of a country are not enough to balance a combined deficit in current and capital account on a sustained basis, then the phenomenon is called a BoP crisis. |
| II. It can be tackled by exporting more or by limiting imports through tariffs, quotas, etc. Contractionary fiscal and monetary policies can also tackle the crisis through lower import demand with fall in average income levels. |
| III. Another short term solution is currency devaluation which encourages exports and discourages costlier imports. |
A) Both I & II
B) Only I
C) II & III
D) All the above
Correct Answer: D
Solution :
If international reserves of a country are not enough to balance a combined deficit in current and capital account on a sustained basis, then the phenomenon is called a BoP crisis. It can be tackled by exporting more or by limiting imports through tariffs, quotas, etc. Contractionary fiscal and monetary policies can also tackle the crisis through lower import demand with fall in average income levels. Another short term solution is currency devaluation which encourages exports and discourages costlier imports.
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