• 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...


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.


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.


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

    mention of the latter in the text would have precipitated a walkout by the Cairns Group. Finally, negotiations proper started in April 2002, with a stock-take of comprehensive draft Schedules to take place by the time of the Mexico Ministerial.86 The highlight of negotiations so far has been the radical

  2. Free essay

    does uk housing market warrant government intervention

    However there are problems, the main issue is that due to government regulations only a small amount of people actually qualify for the scheme giving it minimal effect, therefore the governments expenditure has no real change. If the government allowed more people to be eligible this could also cause a

  1. 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.

  2. Flower Industry in Netherlands

    Prices go highest in winter and lowest in summer. Third, prices differ considerably by quality, which means vase life and opening of buds. Last, large price gaps exist between new and bulk products. New and special flowers can be priced extremely high. For instance, the price of "Rising Sun" is seven-fold of price of "Royal Dutch", which are both roses.

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

    and if so Eddie would be waiting to see a look of indifference on Rodolpho's face, and maybe even a kiss back. Rodolpho's character has a big impact on the whole family. Catherine and Beatrice seem to see him as funny, lively and attractive with Beatrice saying: "He's a nice

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

    The lack of buoys and other navigational aids makes costal shipping hazardous. As a result, Port-au- Prince has become the most expensive port in the Caribbean, which has had a detrimental effect on both export and import activity. b) Strategies and Costs The program for ports (totalling $8.5 million)

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