IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
-External transfer problem,internal transfer problem

Question

Quizplus · Accepted Answer

The Answer is External Transfer Problem:

The external transfer problem refers to the difficulties that a country faces when it needs to make payments across national borders, particularly in the context of repaying international debts or making interest payments. This problem arises when a country does not have enough foreign currency reserves or cannot generate sufficient foreign exchange through exports to meet its international obligations. The significance of the external transfer problem lies in its potential to lead to a balance of payments crisis, where a country cannot meet its international financial commitments, which can result in a loss of confidence by foreign investors and creditors, leading to a devaluation of the country's currency, inflation, and potentially an economic crisis.

Internal Transfer Problem:

The internal transfer problem, on the other hand, refers to the challenges a country faces in mobilizing domestic resources to meet its external obligations. This often involves shifting resources from domestic use to export production or reducing domestic consumption to free up resources for debt repayment. The significance of the internal transfer problem is that it can lead to economic hardship within the country, as it may require austerity measures, higher taxes, or cuts in government spending. These measures can reduce economic growth, increase unemployment, and lead to social and political unrest.

Relationship between External and Internal Transfer Problems:

The relationship between the external and internal transfer problems is that they are two sides of the same coin regarding a country's ability to manage its international financial obligations. The external transfer problem focuses on the cross-border movement of funds, while the internal transfer problem deals with the allocation of domestic resources to facilitate these movements. Both problems must be addressed for a country to maintain financial stability and avoid a crisis. If a country cannot solve its external transfer problem due to a lack of foreign exchange, it may be forced to make difficult internal adjustments to generate the needed funds. Conversely, if a country cannot or is unwilling to make the necessary internal adjustments, it may exacerbate the external transfer problem by failing to accumulate the foreign exchange necessary to meet its international commitments. Addressing both problems often requires coordinated economic policies, including fiscal discipline, monetary stability, and structural reforms to improve the balance of payments and ensure sustainable economic growth.