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JAMB Economics 1981 Question 27

Question 27

Balance of Payments and Exchange Rates

Surplus in balance of payments leads to

  1. A.inflation or increasing prices generally
  2. B.increase in foreign reserves
  3. C.decrease in foreign reserves
  4. D.Government budget surplus
  5. E.none of the above.
Show the answer and explanation

Answer: B (increase in foreign reserves)

Explanation

When more foreign currency comes in than goes out, the extra is added to the country's foreign reserves.