Question

What is meant by deficit in balance of payments?

Hint:

Balance of payments deficit means that a country's total international payments exceed its total international receipts.

Answer 1

Step 1: Meaning of Balance of Payments.
Balance of payments is a systematic record of all economic transactions between the residents of a country and the rest of the world during a specific period. It includes transactions related to goods, services, capital, and financial transfers.
Step 2: Meaning of Deficit in Balance of Payments.
A deficit in the balance of payments occurs when the total payments made to foreign countries exceed the total receipts from them. This indicates that the country is spending more foreign currency than it is earning.
Step 3: Causes of Deficit.
Deficit in the balance of payments may occur due to high imports, low exports, large foreign debt payments, or excessive spending on foreign goods and services.
Step 4: Measures to Correct Deficit.
To correct the deficit, a country may encourage exports, reduce imports, promote domestic production, or use foreign exchange reserves.