What are the reasons for inbalance in balance of payment? how does the adjustment process works in case of balance of payment?
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The correction of BOP disequilibrium is a prime necessity for the country which experiences it. In the case of a deficit, a country can only sustain the deficit, without changing its exchange rate or resorting to controls on its imports as long as, its stock of international liquidity holds out.
In the case of a surplus, the forces impelling correction in less strong.
The surplus country will accumulate international liquidly and will continue to do so as long as the surplus persists. Such accumulation of international liquidity may have repercussions upon the price level of the surplus country.
In the case of a surplus, the forces impelling correction in less strong.
The surplus country will accumulate international liquidly and will continue to do so as long as the surplus persists. Such accumulation of international liquidity may have repercussions upon the price level of the surplus country.
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