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How does BOP disequilibrium affect the domestic market?

Updated: 9/17/2019
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Q: How does BOP disequilibrium affect the domestic market?
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What are the types of disequilibrium in bop?

There are 3 types of disequilibrium's in balance of payments:- 1) cyclical disequilibrium 2) secular disequilibrium 3) structural disequilibrium structural disequilibrium at:-a) goods level b) at factors level


What do you mean by structural disequilibrium in bop?

structural disequilibrium denotes change in the economic structure of any state where the balance of payment was previously favourable.


What are the Consequences of bop disequilibrium to domestic market?

Domestic EconomyPressing Need for corrective actionDue to low business confidence foreigners are reluctant to invest in such economyFewer stocks , variety of exotic goods as imports are limited and heavy protectionist policieswill be usedOthers are follow through, like high unemployment, reduced economic growth etc...External EconomyPut pressure in govt to edit protectionist policiesDevaluation of exchange rate


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How does capital account affect the BOP?

Capital account records short-term (e.g hot money) and long-term capital flows (e.g FDI). Since BOP records all transactions between the residents of the country and the rest of the world, an increase in capital account will increase the BOP of a country.


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What are the causes for disequilibrium in bop?

Natural Factors: natural calamities such as floods, drought, earthquake etcEconomic Factors: Cyclical fluctuationsInflationCapital movementsMiscellaneous Factors: The changes in tastes, habits, fashions of the people; discovery of new substitutes for exports; the development of alternative sources of supply.Political Factors: example political instability.


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