How to solve iT A nations balance of payments can be affecte

How to solve iT?

A nation\'s balance of payments can be affected by changes in

A) foreign income

B the differential between domestic and foreign interest rates

C the real exchange rate

D all of the above

Solution

A balance of Payment (BOP) is the record of all economic transactions that take place between the residents of the country and the rest of the world in a certain period of time. This can be affected by all the options mentioned above. Foreign income leads to increase of BOP surplus or reduction in BOP deficit. Changes in differentials between domestic and foreign interest rates affect the capital flows in and out of the country. The real exchange rate also affects the exports and imports of a country. Hence the correct answer is (D) i.e all of the above.