Balance of payment disequilibrium

Causes of BOP Disequilibrium, Types of disequilibrium

1. In BOP

2. A disequilibrium in the BOP means it i s condition of Surplus Or deficit Surplus in the BOP occurs when Total Receipts exceeds Total Payments. Deficit in the BOP occurs when Total Payments exceeds Total Receipts . BOP DISEQUILIBRIUM Thus, BOP= Favourable CREDIT>DEBIT Thus, BOP= Unfavourable CREDIT<DEBIT

3. Causes Of Disequilibrium In BOP

4. 1. Temporary Causes It arises due to variations in the trade, effect of weather on agriculture production etc . 2. National Income ( the total amount of money earned within a country) - Change in country’s national income leads to disequilibrium National income decreases= Increases in imports= Deficit in BOP Causes

5. 3. Inflation If there is inflation, prices of exports increase, thus increase in export prices leading to decline in exports and rise in imports result in adverse . → Causes

6. 4. Economic Development A country’s balance of payments also depends on its stage of economic development. If a country is developing it will have a deficit in its balance of payments. Causes

7. 5. Borrowings and lending A country which gives loans and grants on a large scale to other countries has a deficit in its balance of payments on capital account. On the other hand, a developing country borrowing large funds from other countries may have a favourable balance of payments. Causes

8. 6. Change in exchange rate This change arise due to change in exports and imports. If exports are more then imports → demand for its currency increase (exchange moves in favours). On the other hand if imports are more than exports the → demand for the foreign currency increase (exchange moves unfavour ) Causes

9. 1. Cyclical disequilibrium Prosperity, recession, depression & recovery 2. Structural disequilibrium Change in taste, technological advancement, declaration of war, natural calamities 3. Short run disequilibrium Troubles of calamities failures, earthquakes, strikes, lockouts 4. Long run disequilibrium Secular which occur over the long term. Secular trends are not seasonal or cyclical. Instead, they remain consistent over time. Types of disequilibrium

10. Too much disequilibrium leads to deficit trade position. It brings fall in country’s growth. It exhibits low competitive strength. conclusion

11. measures