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Improving a Deficit in the Balance of Payments

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Discuss the alternative policies a government may use to improve a
deficit in the Balance of Payments (BOP)

There are many ways a government can improve a deficit of the BOP.
First we must define the key terms. A deficit is the falling short of
revenue as compared with expenditure; the amount of this deficiency;
the amount required to make assets balance liabilities.

The Balance of payments is a record or overall statement of a
country’s economic transactions with the rest of the world, usually
over a year.

Now it is clear what the question means it is important to understand
what causes a deficit in the BOP. There is often a tendency for UK
consumers to buy foreign output goods leading to an increase in the
amount of imports coming into the county. Often the domestic market
cannot cope with the demand so imports are made to satisfy demand.
Some UK firms have high non-competitive prices so foreign goods are
preferred. Also the quality, designs reliability and after sales
service are important. Declining comparative advantages in many areas
– the advantages are that countries have in producing certain goods
and services change over time as technology alters and other countries
exploit their economic resources and develop competing industries. UK
manufacturing industry has suffered over the years from the emergence
of low cost production in newly industrialised areas such as South
Korea and other parts of Europe.

A controversial opinion is that t...

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