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JAMB Economics 1989 Question 40

Question 40

Balance of Payments and Exchange Rates

By using exchange controls, a country tries to eliminate a balance of payments deficit by

  1. A.limiting her imports to its currency value of exports
  2. B.reducing the nation's domestic price level
  3. C.limiting her exports to its currency value of imports
  4. D.overvaluing the country's currency.
Show the answer and explanation

Answer: A (limiting her imports to its currency value of exports)

Explanation

Exchange control rations foreign currency, so the country can only spend on imports what it earns from exports.