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JAMB Economics 2002 Question 38

Question 38

Balance of Payments and Exchange Rates

One way of correcting the balance of payments problem of a country is to

  1. A.introduce import-promotion measures
  2. B.buy investments abroad
  3. C.devalue the currency
  4. D.de-emphasize import-substitution industries
Show the answer and explanation

Answer: C (devalue the currency)

Explanation

Devaluation makes exports cheaper and imports dearer, which helps to reduce a balance of payments deficit.