Question

15. Which of the following is mentioned in the text as a possible means by which the government may attempt to improve its balance-of-trade position (increase its exports or reduce its imports)?
    1. The government could attempt to reduce its home currency's value.
16. 2. The government could require firms to engage in outsourcing.
17. 3. The government could provide subsidies to importers.
18. 4. All of these are mentioned.

Answer 1

Balance of Trade is the difference between value of country's imports and exports for a given period of time. A country with higher exports of goods and services than imports will have trade surplus, opposite will have trade deficit. The government may introduce number of policies to improve balance of trade (to increase exports of goods and services and reduce imports of goods and services).

a. The government could attempt to reduce its home currency's value?

Ans:- Correct. The government of country which manages it's exchange rates may attempt to reduce home currency's value in respect to foreign currency's value. This reduction of rate will promote buyer from foreign country to purchase more goods and services at cheaper prices.

b. The government could require firms to engage in outsourcing?

Ans:- Incorrect. This tactic will result in importing of goods and services from foreign country thus increasing trade deficit.

c. The government could provide subsidies to importers?

Ans:- Incorrect. The government providing subsidies to importers will benefit importers to import goods and services at low-cost will hinder local business and industries thus decreasing exports in long term and negatively impacting balance of trade immediately (short term).

d. All of these are mentioned

Ans:- Incorrect.