Discuss two causes of disequilibrium of the balance of payments.

1.	Discuss two causes of disequilibrium of the balance of payments.
Answer» Two causes of disequilibrium of the balance of payments are: (i) Lack of development of production system: In an underdeveloped country where the production system is not developed enough all the necessities of life have to be imported. There are very few things that such a country can export and that too in small quantities. These countries encounter an adverse balance of payment. (ii) When a backward economy tries to develop it takes the balance of payment difficulties again. The various development schemes usually necessitate the imports of machines, raw material. These push up the import bill. Exports can be raised only when these schemes are completed and output in the country increases. Until then the balance of payments remains adverse.

Answer»

Two causes of disequilibrium of the balance of payments are:

(i) Lack of development of production system: In an underdeveloped country where the production system is not developed enough all the necessities of life have to be imported. There are very few things that such a country can export and that too in small quantities. These countries encounter an adverse balance of payment.

(ii) When a backward economy tries to develop it takes the balance of payment difficulties again. The various development schemes usually necessitate the imports of machines, raw material. These push up the import bill. Exports can be raised only when these schemes are completed and output in the country increases. Until then the balance of payments remains adverse.

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