Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The country should increase its capital and financial account inflows to offset the decrease in the current account.
B
The country should decrease its capital and financial account inflows as the current account declines.
C
The country should ignore the changes in the balance of payments as they won't affect the economy.
D
The country should only focus on increasing net exports without considering the capital account.
Understanding the Answer
Let's break down why this is correct
Answer
When a country sees a drop in net exports, it means that fewer people in other countries are buying its goods. To maintain economic stability, the country can adjust its balance of payments by encouraging more imports or increasing foreign investments. For example, if the country promotes tourism or attracts foreign companies to set up operations, it can bring in more money from abroad. This helps balance the money going out from reduced exports with money coming in from other sources. By doing this, the country can stabilize its economy and support local businesses even during tough times.
Detailed Explanation
When exports go down, the country can bring in more money through investments. Other options are incorrect because Some might think that lowering investments will help when exports fall; Ignoring changes can seem easy, but it can lead to bigger problems later.
Key Concepts
Balance of Payments
Net Exports
Current Account
Topic
Balance of Payments Adjustments
Difficulty
easy level question
Cognitive Level
understand
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