• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

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

Extracts from this document...

Introduction

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. ...read more.

Middle

Sometimes the domestic government sells licenses to foreign firms they in turn buy and sell licenses amongst each other. Some countries reach export agreements to limit their goods to a specific quota. Whilst other countries can make it difficult for firms to import by imposing restrictions and being deliberately bureaucratic. Exchange control is another method; governments try and stop domestic consumers from spending too much on imports. They can do a number of things; they can restrict the amount of foreign currency available to the public, they can allow the exchange rate to drop by actively intervening. Domestic producers can lower their prices below the market equilibrium by making export subsidies. The final method is tariffs. It can be defined as a tax on imports and is used to restrict imports and raise revenue for the government. The diagram (figure 1) shows the market price at Wp, Qs is how much they can supply the price and Qd is what the consumer demands. As Qd > Qs imports will come into the economy and satisfy demand. A tariff is placed on the value of imports. ...read more.

Conclusion

Short-term protection of nursery industries allows them to grow when it has grown sufficiently there is no need to protect it and can trade on the international stage. The drawback of this is that the industry will never reach full efficiency because it's free of the disciplines of foreign competition. It also protects against dumping this is when the sale of a good is below the cost of production. In the short-term consumer's benefit from low prices of foreign goods, however in the long - term domestic businesses will go out of business resulting in the foreign firm having the monopoly over the market. The consequence of this will be that they can then charge what they like. Another important factor is externalities and import controls. Protecting de - merit goods such as alcohol, tobacco and narcotic drugs. By imposing high tariff barriers on these or just banning them it can safeguard society. There are also non-economic reasons a country may not want to specialise because if the market declines or there is a better competitor then there will be mass unemployment. Domestic employment is key government objectives so by protecting industry you are ensuring jobs. Protection may be for political reasons, for instance the UK does not trade with Nigeria and Iraq. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level UK, European & Global Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level UK, European & Global Economics essays

  1. Free essay

    does uk housing market warrant government intervention

    89% 100% 89% 100% 100% 89% South West 100% 100% 100% 100% 100% 100% South East 98% 100% 98% 99% 100% 100% Greater London 100% 100% 100% 100% 100% 100% The problem has been that although wages have been rising ahead of inflation, they have just not been able to keep up with the rapidly rising house prices.

  2. The Balance of Payments.

    Figures released by National Statistics Online show that the general trend in the current account has been progressively worsening since then. At the start of 2003 UK Trade Info estimated the UK's balance on trade in goods and services as a deficit of 2.2 billion.

  1. Balance of Payments Policies

    balance of payments to balance Balance of Payments on Current Account This includes all the payments made and receipts earned that result from trade. Hence this part of the accounts allows us to judge the international competitiveness of a country.

  2. Where does the World Trade Organisation fit in the overall scheme of international public ...

    In an ever-extending global market economy, governments simply lack the detailed knowledge to make selective interventions that work. In Hayek's terms, governments and other actors are "constitutionally ignorant". Ratcheting up the output of detailed regulations is not the answer. On the contrary, simplicity is the key.

  1. Emergency Economic Recovery Program From the United Nations International Report, Vol. I, no. A1

    There is a significant rural-urban migration and urban population growth is four times that in rural areas. Insufficient attention to the interrelationship of population and development during the past decades has already brought Haiti to the brink of its carrying capacity and heavily mortgaged its future sustainable human development.

  2. A view from the bridge - Examine the manliness hostility and aggression and the ...

    One of the main moments of dramatic tension that shows Eddie's view to the audience is when Eddie suddenly kisses Rodolpho. The stage directions say: "Eddie pins his arms, laughing, and suddenly kisses him". What Eddie has done seems to be a test of whether Rodolpho is really a homosexual,

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work