If government increase tariff on the import of goods, how it will impact the state of BoP?
a) This will lead to an inflow of foreign exchange
b) This will lead to an outflow of foreign exchange
c) There will be no impact on the state of BoP
d) Can’t be predicted
Ans – d)
An increase in the tariff on the import of goods discourages the import of goods. It leads to less outflow of foreign exchange from India.
It may or may not lead to a positive Balance of Trade. It depends upon the quantum of export and import of goods.
if there is a deficit balance of trade, it would improve definitely improve it.
But an improved Balance of Trade does not insure and definite positive and negative effect on the overall Balance of Payments.
Hence Answer D is the correct option. Can not be predicted.
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