In what respects foreign trade will be useful in removing the adverse economic effect of deficit demand?
Dear Student
Deficit demand : Deficit demand is a situation when in an economy aggregate demand fall short of aggregate supply at full employment level. It leads to depression in economy marked by overproduction, rise in unemployment, and fall in prices and income, and idleness and wastage of resources.
Measures to control deficit demand:
1. Monetary policy
2. Fiscal policy
3. Export promotion
Foreign trade includes export and import by country. In order to control deficit demand, government shall take following steps:
1. Export promotion: Export promotion includes export subsidies, reduction and abolition of the export duties, encouraging export production and marketing by providing fiscal, monetary and physical incentives to industries.
2. Import Reduction: Import reduction includes enhancing import duties, restricting imports through import quotas, licensing and prohibiting import of inessential items.
Increase in exports will lead to inflow of foreign exchange in country and reduction in import will result in less outflow of foreign exchange leading to net increase in supply of foreign exchange which will improve situation of deficit demand and thus improving balance of payments .
Regards
Deficit demand : Deficit demand is a situation when in an economy aggregate demand fall short of aggregate supply at full employment level. It leads to depression in economy marked by overproduction, rise in unemployment, and fall in prices and income, and idleness and wastage of resources.
Measures to control deficit demand:
1. Monetary policy
2. Fiscal policy
3. Export promotion
Foreign trade includes export and import by country. In order to control deficit demand, government shall take following steps:
1. Export promotion: Export promotion includes export subsidies, reduction and abolition of the export duties, encouraging export production and marketing by providing fiscal, monetary and physical incentives to industries.
2. Import Reduction: Import reduction includes enhancing import duties, restricting imports through import quotas, licensing and prohibiting import of inessential items.
Increase in exports will lead to inflow of foreign exchange in country and reduction in import will result in less outflow of foreign exchange leading to net increase in supply of foreign exchange which will improve situation of deficit demand and thus improving balance of payments .
Regards