A balance of payments deficit occurs if

Question

Quizplus · Accepted Answer

A balance of payments deficit occurs when a country imports more goods and services than it exports, which leads to an excess supply of the country's currency foreign exchange markets. This excess supply results in a decline in the exchange rate, which can make imports more expensive and exports cheaper, ultimately helping to correct the deficit. Thus, option B is the correct answer as it describes the scenario of excess supply of a nation's currency leading to a balance of payments deficit.

A Balance of Payments Deficit Occurs If