What are the effects of disequilibrium deficit in BOP?

The balance of payments of a country is said to be in equilibriumwhen the demand for foreign exchange is exactlyequivalent to the supply of it. The balance of payments is indisequilibrium when there is either a surplus or a deficit in thebalance of payments. When there is a deficit in the balance ofpayments, the demand for foreign exchange exceeds thedemand for it.A number of factors may cause disequilibrium in the balance ofpayments. These various causes may be broadly categorizedinto:(i) Economic factors ;(ii) Political factors; and(iii) Sociological factors.Economic Factors:A number of economic factors may cause disequilibrium in thebalance of payments. These are:Development Disequilibrium:Large-scale development expenditures usually increase thepurchasing power, aggregate demand and prices, resulting insubstantially large imports. The development disequilibrium iscommon in developing countries, because the above factors,and large-scale capital goods imports needed for carrying out thevarious development programmes, give rise to a deficit in thebalance of payments.Capital Disequilibrium:Cyclical fluctuations in general business activity are one of theprominent reasons for the balance of payments disequilibrium.As Lawrance W. Towle points out, depression always bringsabout a drastic shrinkage in world trade, while prosperitystimulates it. A country enjoying a boom all by itselt ordinarilyexperiences more rapid growth in its imports than its exports,while the opposite is true of other countries. But productionin the other countries will be activated as a result of theincreased exports to the boom country.Secular Disequilibrium:Sometimes, the balance of payments diequilibrium persists fora long time because of certain secular trends in the economy.For instance, in a developed country, the disposable income isgenerally very high and, therefore, the aggregate demand, too, isvery high. At the same time, production costs are very highbecause of the higher wages. This naturally results in higherprices. These two factors - high aggregate demand and higherdomestic prices may result in the imports being much higherthan the exports. This could be one of the reasons for thepersistent balance of payments deficits of the USA.Structural Disequilibrium:Structual changes in the economy may also cause balance ofpayments disequilibrium. Such structural changes include thedevelopment of alternative sources of supply, the developmentof better substitutes, the exhaustion of productive resources,the changes in transport routes and costs, etc.Political Factors:Certain political factors may also produce a balance of paymentsdisequilibrium. For instance, a country plagued with politicalinstability may experience large capital outflows, inadequacy ofdomestic investment and production, etc. These factors may,sometimes, cause disequilibrium in the balance of payments.Further, factors like war, changes in world trade routes, etc., mayalso produce balance of payments difficulties.Social Factors:Certain social factors influence the balance of payments. Forinstance, changes in tastes, preferences, fashions, etc. may affectimports and exports and thereby affect the balance of payments

The balance of payments of a country is said to be in equilibriumwhen the demand for foreign exchange is exactlyequivalent to the supply of it. The balance of payments is indisequilibrium when there is either a surplus or a deficit in thebalance of payments. When there is a deficit in the balance ofpayments, the demand for foreign exchange exceeds thedemand for it.A number of factors may cause disequilibrium in the balance ofpayments. These various causes may be broadly categorizedinto:(i) Economic factors ;(ii) Political factors; and(iii) Sociological factors.Economic Factors:A number of economic factors may cause disequilibrium in thebalance of payments. These are:Development Disequilibrium:Large-scale development expenditures usually increase thepurchasing power, aggregate demand and prices, resulting insubstantially large imports. The development disequilibrium iscommon in developing countries, because the above factors,and large-scale capital goods imports needed for carrying out thevarious development programmes, give rise to a deficit in thebalance of payments.Capital Disequilibrium:Cyclical fluctuations in general business activity are one of theprominent reasons for the balance of payments disequilibrium.As Lawrance W. Towle points out, depression always bringsabout a drastic shrinkage in world trade, while prosperitystimulates it. A country enjoying a boom all by itselt ordinarilyexperiences more rapid growth in its imports than its exports,while the opposite is true of other countries. But productionin the other countries will be activated as a result of theincreased exports to the boom country.Secular Disequilibrium:Sometimes, the balance of payments diequilibrium persists fora long time because of certain secular trends in the economy.For instance, in a developed country, the disposable income isgenerally very high and, therefore, the aggregate demand, too, isvery high. At the same time, production costs are very highbecause of the higher wages. This naturally results in higherprices. These two factors - high aggregate demand and higherdomestic prices may result in the imports being much higherthan the exports. This could be one of the reasons for thepersistent balance of payments deficits of the USA.Structural Disequilibrium:Structual changes in the economy may also cause balance ofpayments disequilibrium. Such structural changes include thedevelopment of alternative sources of supply, the developmentof better substitutes, the exhaustion of productive resources,the changes in transport routes and costs, etc.Political Factors:Certain political factors may also produce a balance of paymentsdisequilibrium. For instance, a country plagued with politicalinstability may experience large capital outflows, inadequacy ofdomestic investment and production, etc. These factors may,sometimes, cause disequilibrium in the balance of payments.Further, factors like war, changes in world trade routes, etc., mayalso produce balance of payments difficulties.Social Factors:Certain social factors influence the balance of payments. Forinstance, changes in tastes, preferences, fashions, etc. may affectimports and exports and thereby affect the balance of payments

The balance of payments of a country is said to be in equilibriumwhen the demand for foreign exchange is exactlyequivalent to the supply of it. The balance of payments is indisequilibrium when there is either a surplus or a deficit in thebalance of payments. When there is a deficit in the balance ofpayments, the demand for foreign exchange exceeds thedemand for it.A number of factors may cause disequilibrium in the balance ofpayments. These various causes may be broadly categorizedinto:(i) Economic factors ;(ii) Political factors; and(iii) Sociological factors.Economic Factors:A number of economic factors may cause disequilibrium in thebalance of payments. These are:Development Disequilibrium:Large-scale development expenditures usually increase thepurchasing power, aggregate demand and prices, resulting insubstantially large imports. The development disequilibrium iscommon in developing countries, because the above factors,and large-scale capital goods imports needed for carrying out thevarious development programmes, give rise to a deficit in thebalance of payments.Capital Disequilibrium:Cyclical fluctuations in general business activity are one of theprominent reasons for the balance of payments disequilibrium.As Lawrance W. Towle points out, depression always bringsabout a drastic shrinkage in world trade, while prosperitystimulates it. A country enjoying a boom all by itselt ordinarilyexperiences more rapid growth in its imports than its exports,while the opposite is true of other countries. But productionin the other countries will be activated as a result of theincreased exports to the boom country.Secular Disequilibrium:Sometimes, the balance of payments diequilibrium persists fora long time because of certain secular trends in the economy.For instance, in a developed country, the disposable income isgenerally very high and, therefore, the aggregate demand, too, isvery high. At the same time, production costs are very highbecause of the higher wages. This naturally results in higherprices. These two factors - high aggregate demand and higherdomestic prices may result in the imports being much higherthan the exports. This could be one of the reasons for thepersistent balance of payments deficits of the USA.Structural Disequilibrium:Structual changes in the economy may also cause balance ofpayments disequilibrium. Such structural changes include thedevelopment of alternative sources of supply, the developmentof better substitutes, the exhaustion of productive resources,the changes in transport routes and costs, etc.Political Factors:Certain political factors may also produce a balance of paymentsdisequilibrium. For instance, a country plagued with politicalinstability may experience large capital outflows, inadequacy ofdomestic investment and production, etc. These factors may,sometimes, cause disequilibrium in the balance of payments.Further, factors like war, changes in world trade routes, etc., mayalso produce balance of payments difficulties.Social Factors:Certain social factors influence the balance of payments. Forinstance, changes in tastes, preferences, fashions, etc. may affectimports and exports and thereby affect the balance of payments

The balance of payments of a country is said to be in equilibriumwhen the demand for foreign exchange is exactlyequivalent to the supply of it. The balance of payments is indisequilibrium when there is either a surplus or a deficit in thebalance of payments. When there is a deficit in the balance ofpayments, the demand for foreign exchange exceeds thedemand for it.A number of factors may cause disequilibrium in the balance ofpayments. These various causes may be broadly categorizedinto:(i) Economic factors ;(ii) Political factors; and(iii) Sociological factors.Economic Factors:A number of economic factors may cause disequilibrium in thebalance of payments. These are:Development Disequilibrium:Large-scale development expenditures usually increase thepurchasing power, aggregate demand and prices, resulting insubstantially large imports. The development disequilibrium iscommon in developing countries, because the above factors,and large-scale capital goods imports needed for carrying out thevarious development programmes, give rise to a deficit in thebalance of payments.Capital Disequilibrium:Cyclical fluctuations in general business activity are one of theprominent reasons for the balance of payments disequilibrium.As Lawrance W. Towle points out, depression always bringsabout a drastic shrinkage in world trade, while prosperitystimulates it. A country enjoying a boom all by itselt ordinarilyexperiences more rapid growth in its imports than its exports,while the opposite is true of other countries. But productionin the other countries will be activated as a result of theincreased exports to the boom country.Secular Disequilibrium:Sometimes, the balance of payments diequilibrium persists fora long time because of certain secular trends in the economy.For instance, in a developed country, the disposable income isgenerally very high and, therefore, the aggregate demand, too, isvery high. At the same time, production costs are very highbecause of the higher wages. This naturally results in higherprices. These two factors - high aggregate demand and higherdomestic prices may result in the imports being much higherthan the exports. This could be one of the reasons for thepersistent balance of payments deficits of the USA.Structural Disequilibrium:Structual changes in the economy may also cause balance ofpayments disequilibrium. Such structural changes include thedevelopment of alternative sources of supply, the developmentof better substitutes, the exhaustion of productive resources,the changes in transport routes and costs, etc.Political Factors:Certain political factors may also produce a balance of paymentsdisequilibrium. For instance, a country plagued with politicalinstability may experience large capital outflows, inadequacy ofdomestic investment and production, etc. These factors may,sometimes, cause disequilibrium in the balance of payments.Further, factors like war, changes in world trade routes, etc., mayalso produce balance of payments difficulties.Social Factors:Certain social factors influence the balance of payments. Forinstance, changes in tastes, preferences, fashions, etc. may affectimports and exports and thereby affect the balance of payments

The balance of payments of a country is said to be in equilibriumwhen the demand for foreign exchange is exactlyequivalent to the supply of it. The balance of payments is indisequilibrium when there is either a surplus or a deficit in thebalance of payments. When there is a deficit in the balance ofpayments, the demand for foreign exchange exceeds thedemand for it.A number of factors may cause disequilibrium in the balance ofpayments. These various causes may be broadly categorizedinto:(i) Economic factors ;(ii) Political factors; and(iii) Sociological factors.Economic Factors:A number of economic factors may cause disequilibrium in thebalance of payments. These are:Development Disequilibrium:Large-scale development expenditures usually increase thepurchasing power, aggregate demand and prices, resulting insubstantially large imports. The development disequilibrium iscommon in developing countries, because the above factors,and large-scale capital goods imports needed for carrying out thevarious development programmes, give rise to a deficit in thebalance of payments.Capital Disequilibrium:Cyclical fluctuations in general business activity are one of theprominent reasons for the balance of payments disequilibrium.As Lawrance W. Towle points out, depression always bringsabout a drastic shrinkage in world trade, while prosperitystimulates it. A country enjoying a boom all by itselt ordinarilyexperiences more rapid growth in its imports than its exports,while the opposite is true of other countries. But productionin the other countries will be activated as a result of theincreased exports to the boom country.Secular Disequilibrium:Sometimes, the balance of payments diequilibrium persists fora long time because of certain secular trends in the economy.For instance, in a developed country, the disposable income isgenerally very high and, therefore, the aggregate demand, too, isvery high. At the same time, production costs are very highbecause of the higher wages. This naturally results in higherprices. These two factors - high aggregate demand and higherdomestic prices may result in the imports being much higherthan the exports. This could be one of the reasons for thepersistent balance of payments deficits of the USA.Structural Disequilibrium:Structual changes in the economy may also cause balance ofpayments disequilibrium. Such structural changes include thedevelopment of alternative sources of supply, the developmentof better substitutes, the exhaustion of productive resources,the changes in transport routes and costs, etc.Political Factors:Certain political factors may also produce a balance of paymentsdisequilibrium. For instance, a country plagued with politicalinstability may experience large capital outflows, inadequacy ofdomestic investment and production, etc. These factors may,sometimes, cause disequilibrium in the balance of payments.Further, factors like war, changes in world trade routes, etc., mayalso produce balance of payments difficulties.Social Factors:Certain social factors influence the balance of payments. Forinstance, changes in tastes, preferences, fashions, etc. may affectimports and exports and thereby affect the balance of payments

The balance of payments of a country is said to be in equilibriumwhen the demand for foreign exchange is exactlyequivalent to the supply of it. The balance of payments is indisequilibrium when there is either a surplus or a deficit in thebalance of payments. When there is a deficit in the balance ofpayments, the demand for foreign exchange exceeds thedemand for it.A number of factors may cause disequilibrium in the balance ofpayments. These various causes may be broadly categorizedinto:(i) Economic factors ;(ii) Political factors; and(iii) Sociological factors.Economic Factors:A number of economic factors may cause disequilibrium in thebalance of payments. These are:Development Disequilibrium:Large-scale development expenditures usually increase thepurchasing power, aggregate demand and prices, resulting insubstantially large imports. The development disequilibrium iscommon in developing countries, because the above factors,and large-scale capital goods imports needed for carrying out thevarious development programmes, give rise to a deficit in thebalance of payments.Capital Disequilibrium:Cyclical fluctuations in general business activity are one of theprominent reasons for the balance of payments disequilibrium.As Lawrance W. Towle points out, depression always bringsabout a drastic shrinkage in world trade, while prosperitystimulates it. A country enjoying a boom all by itselt ordinarilyexperiences more rapid growth in its imports than its exports,while the opposite is true of other countries. But productionin the other countries will be activated as a result of theincreased exports to the boom country.Secular Disequilibrium:Sometimes, the balance of payments diequilibrium persists fora long time because of certain secular trends in the economy.For instance, in a developed country, the disposable income isgenerally very high and, therefore, the aggregate demand, too, isvery high. At the same time, production costs are very highbecause of the higher wages. This naturally results in higherprices. These two factors - high aggregate demand and higherdomestic prices may result in the imports being much higherthan the exports. This could be one of the reasons for thepersistent balance of payments deficits of the USA.Structural Disequilibrium:Structual changes in the economy may also cause balance ofpayments disequilibrium. Such structural changes include thedevelopment of alternative sources of supply, the developmentof better substitutes, the exhaustion of productive resources,the changes in transport routes and costs, etc.Political Factors:Certain political factors may also produce a balance of paymentsdisequilibrium. For instance, a country plagued with politicalinstability may experience large capital outflows, inadequacy ofdomestic investment and production, etc. These factors may,sometimes, cause disequilibrium in the balance of payments.Further, factors like war, changes in world trade routes, etc., mayalso produce balance of payments difficulties.Social Factors:Certain social factors influence the balance of payments. Forinstance, changes in tastes, preferences, fashions, etc. may affectimports and exports and thereby affect the balance of payments

The balance of payments of a country is said to be in equilibriumwhen the demand for foreign exchange is exactlyequivalent to the supply of it. The balance of payments is indisequilibrium when there is either a surplus or a deficit in thebalance of payments. When there is a deficit in the balance ofpayments, the demand for foreign exchange exceeds thedemand for it.A number of factors may cause disequilibrium in the balance ofpayments. These various causes may be broadly categorizedinto:(i) Economic factors ;(ii) Political factors; and(iii) Sociological factors.Economic Factors:A number of economic factors may cause disequilibrium in thebalance of payments. These are:Development Disequilibrium:Large-scale development expenditures usually increase thepurchasing power, aggregate demand and prices, resulting insubstantially large imports. The development disequilibrium iscommon in developing countries, because the above factors,and large-scale capital goods imports needed for carrying out thevarious development programmes, give rise to a deficit in thebalance of payments.Capital Disequilibrium:Cyclical fluctuations in general business activity are one of theprominent reasons for the balance of payments disequilibrium.As Lawrance W. Towle points out, depression always bringsabout a drastic shrinkage in world trade, while prosperitystimulates it. A country enjoying a boom all by itselt ordinarilyexperiences more rapid growth in its imports than its exports,while the opposite is true of other countries. But productionin the other countries will be activated as a result of theincreased exports to the boom country.Secular Disequilibrium:Sometimes, the balance of payments diequilibrium persists fora long time because of certain secular trends in the economy.For instance, in a developed country, the disposable income isgenerally very high and, therefore, the aggregate demand, too, isvery high. At the same time, production costs are very highbecause of the higher wages. This naturally results in higherprices. These two factors - high aggregate demand and higherdomestic prices may result in the imports being much higherthan the exports. This could be one of the reasons for thepersistent balance of payments deficits of the USA.Structural Disequilibrium:Structual changes in the economy may also cause balance ofpayments disequilibrium. Such structural changes include thedevelopment of alternative sources of supply, the developmentof better substitutes, the exhaustion of productive resources,the changes in transport routes and costs, etc.Political Factors:Certain political factors may also produce a balance of paymentsdisequilibrium. For instance, a country plagued with politicalinstability may experience large capital outflows, inadequacy ofdomestic investment and production, etc. These factors may,sometimes, cause disequilibrium in the balance of payments.Further, factors like war, changes in world trade routes, etc., mayalso produce balance of payments difficulties.Social Factors:Certain social factors influence the balance of payments. Forinstance, changes in tastes, preferences, fashions, etc. may affectimports and exports and thereby affect the balance of payments

The balance of payments of a country is said to be in equilibriumwhen the demand for foreign exchange is exactlyequivalent to the supply of it. The balance of payments is indisequilibrium when there is either a surplus or a deficit in thebalance of payments. When there is a deficit in the balance ofpayments, the demand for foreign exchange exceeds thedemand for it.A number of factors may cause disequilibrium in the balance ofpayments. These various causes may be broadly categorizedinto:(i) Economic factors ;(ii) Political factors; and(iii) Sociological factors.Economic Factors:A number of economic factors may cause disequilibrium in thebalance of payments. These are:Development Disequilibrium:Large-scale development expenditures usually increase thepurchasing power, aggregate demand and prices, resulting insubstantially large imports. The development disequilibrium iscommon in developing countries, because the above factors,and large-scale capital goods imports needed for carrying out thevarious development programmes, give rise to a deficit in thebalance of payments.Capital Disequilibrium:Cyclical fluctuations in general business activity are one of theprominent reasons for the balance of payments disequilibrium.As Lawrance W. Towle points out, depression always bringsabout a drastic shrinkage in world trade, while prosperitystimulates it. A country enjoying a boom all by itselt ordinarilyexperiences more rapid growth in its imports than its exports,while the opposite is true of other countries. But productionin the other countries will be activated as a result of theincreased exports to the boom country.Secular Disequilibrium:Sometimes, the balance of payments diequilibrium persists fora long time because of certain secular trends in the economy.For instance, in a developed country, the disposable income isgenerally very high and, therefore, the aggregate demand, too, isvery high. At the same time, production costs are very highbecause of the higher wages. This naturally results in higherprices. These two factors - high aggregate demand and higherdomestic prices may result in the imports being much higherthan the exports. This could be one of the reasons for thepersistent balance of payments deficits of the USA.Structural Disequilibrium:Structual changes in the economy may also cause balance ofpayments disequilibrium. Such structural changes include thedevelopment of alternative sources of supply, the developmentof better substitutes, the exhaustion of productive resources,the changes in transport routes and costs, etc.Political Factors:Certain political factors may also produce a balance of paymentsdisequilibrium. For instance, a country plagued with politicalinstability may experience large capital outflows, inadequacy ofdomestic investment and production, etc. These factors may,sometimes, cause disequilibrium in the balance of payments.Further, factors like war, changes in world trade routes, etc., mayalso produce balance of payments difficulties.Social Factors:Certain social factors influence the balance of payments. Forinstance, changes in tastes, preferences, fashions, etc. may affectimports and exports and thereby affect the balance of payments

The balance of payments of a country is said to be in equilibriumwhen the demand for foreign exchange is exactlyequivalent to the supply of it. The balance of payments is indisequilibrium when there is either a surplus or a deficit in thebalance of payments. When there is a deficit in the balance ofpayments, the demand for foreign exchange exceeds thedemand for it.A number of factors may cause disequilibrium in the balance ofpayments. These various causes may be broadly categorizedinto:(i) Economic factors ;(ii) Political factors; and(iii) Sociological factors.Economic Factors:A number of economic factors may cause disequilibrium in thebalance of payments. These are:Development Disequilibrium:Large-scale development expenditures usually increase thepurchasing power, aggregate demand and prices, resulting insubstantially large imports. The development disequilibrium iscommon in developing countries, because the above factors,and large-scale capital goods imports needed for carrying out thevarious development programmes, give rise to a deficit in thebalance of payments.Capital Disequilibrium:Cyclical fluctuations in general business activity are one of theprominent reasons for the balance of payments disequilibrium.As Lawrance W. Towle points out, depression always bringsabout a drastic shrinkage in world trade, while prosperitystimulates it. A country enjoying a boom all by itselt ordinarilyexperiences more rapid growth in its imports than its exports,while the opposite is true of other countries. But productionin the other countries will be activated as a result of theincreased exports to the boom country.Secular Disequilibrium:Sometimes, the balance of payments diequilibrium persists fora long time because of certain secular trends in the economy.For instance, in a developed country, the disposable income isgenerally very high and, therefore, the aggregate demand, too, isvery high. At the same time, production costs are very highbecause of the higher wages. This naturally results in higherprices. These two factors - high aggregate demand and higherdomestic prices may result in the imports being much higherthan the exports. This could be one of the reasons for thepersistent balance of payments deficits of the USA.Structural Disequilibrium:Structual changes in the economy may also cause balance ofpayments disequilibrium. Such structural changes include thedevelopment of alternative sources of supply, the developmentof better substitutes, the exhaustion of productive resources,the changes in transport routes and costs, etc.Political Factors:Certain political factors may also produce a balance of paymentsdisequilibrium. For instance, a country plagued with politicalinstability may experience large capital outflows, inadequacy ofdomestic investment and production, etc. These factors may,sometimes, cause disequilibrium in the balance of payments.Further, factors like war, changes in world trade routes, etc., mayalso produce balance of payments difficulties.Social Factors:Certain social factors influence the balance of payments. Forinstance, changes in tastes, preferences, fashions, etc. may affectimports and exports and thereby affect the balance of payments

The balance of payments of a country is said to be in equilibriumwhen the demand for foreign exchange is exactlyequivalent to the supply of it. The balance of payments is indisequilibrium when there is either a surplus or a deficit in thebalance of payments. When there is a deficit in the balance ofpayments, the demand for foreign exchange exceeds thedemand for it.A number of factors may cause disequilibrium in the balance ofpayments. These various causes may be broadly categorizedinto:(i) Economic factors ;(ii) Political factors; and(iii) Sociological factors.Economic Factors:A number of economic factors may cause disequilibrium in thebalance of payments. These are:Development Disequilibrium:Large-scale development expenditures usually increase thepurchasing power, aggregate demand and prices, resulting insubstantially large imports. The development disequilibrium iscommon in developing countries, because the above factors,and large-scale capital goods imports needed for carrying out thevarious development programmes, give rise to a deficit in thebalance of payments.Capital Disequilibrium:Cyclical fluctuations in general business activity are one of theprominent reasons for the balance of payments disequilibrium.As Lawrance W. Towle points out, depression always bringsabout a drastic shrinkage in world trade, while prosperitystimulates it. A country enjoying a boom all by itselt ordinarilyexperiences more rapid growth in its imports than its exports,while the opposite is true of other countries. But productionin the other countries will be activated as a result of theincreased exports to the boom country.Secular Disequilibrium:Sometimes, the balance of payments diequilibrium persists fora long time because of certain secular trends in the economy.For instance, in a developed country, the disposable income isgenerally very high and, therefore, the aggregate demand, too, isvery high. At the same time, production costs are very highbecause of the higher wages. This naturally results in higherprices. These two factors - high aggregate demand and higherdomestic prices may result in the imports being much higherthan the exports. This could be one of the reasons for thepersistent balance of payments deficits of the USA.Structural Disequilibrium:Structual changes in the economy may also cause balance ofpayments disequilibrium. Such structural changes include thedevelopment of alternative sources of supply, the developmentof better substitutes, the exhaustion of productive resources,the changes in transport routes and costs, etc.Political Factors:Certain political factors may also produce a balance of paymentsdisequilibrium. For instance, a country plagued with politicalinstability may experience large capital outflows, inadequacy ofdomestic investment and production, etc. These factors may,sometimes, cause disequilibrium in the balance of payments.Further, factors like war, changes in world trade routes, etc., mayalso produce balance of payments difficulties.Social Factors:Certain social factors influence the balance of payments. Forinstance, changes in tastes, preferences, fashions, etc. may affectimports and exports and thereby affect the balance of payments