Hey there! Sign in to join this conversationNew here? Join for free
    • Thread Starter
    Offline

    2
    ReputationRep:
    Hi,

    In my notes the teacher gave us it says to get rid of a surplus a country can buy gold or currencies, or pay off debts. I don't see how this reduces the surplus - could anyone explain?
    Offline

    16
    ReputationRep:
    Surplus of? A surplus in the BOP? It can be anything unless you tell us. In Micro terms a surplus can be eliminated by the price mechanism. In macro the only surplus I know about is in the balance of payments which doesn't make sense to eliminate unless it's too high
    Offline

    8
    ReputationRep:
    I assume, if a government is running a fiscal surplus, i.e Theyre taxing more than they spend, leaving them with a surplus of wealth, investing in gold or other currencies is a way to reduce the surplus, aswell as increasing public spending, or indeed servicing a debt
    • Thread Starter
    Offline

    2
    ReputationRep:
    (Original post by Dilzo999)
    Surplus of? A surplus in the BOP? It can be anything unless you tell us. In Micro terms a surplus can be eliminated by the price mechanism. In macro the only surplus I know about is in the balance of payments which doesn't make sense to eliminate unless it's too high
    bop yes
    Offline

    16
    ReputationRep:
    I don't understand what your teacher is getting at. One of the macro economic objectives is to have an equilibrium in the BOP or a small surplus if there's too much of a surplus then the government can reduce it by imposing duties on imports and restricting quotas on exports. Also they can increase interest rates which will cause more hot money to flow into the economy which will cause the exchange rate to increase causing increases in imports and reduction in exports and closing the surplus.
 
 
 
  • See more of what you like on The Student Room

    You can personalise what you see on TSR. Tell us a little about yourself to get started.

  • Poll
    Would you rather give up salt or pepper?
  • See more of what you like on The Student Room

    You can personalise what you see on TSR. Tell us a little about yourself to get started.

  • The Student Room, Get Revising and Marked by Teachers are trading names of The Student Room Group Ltd.

    Register Number: 04666380 (England and Wales), VAT No. 806 8067 22 Registered Office: International House, Queens Road, Brighton, BN1 3XE

    Write a reply...
    Reply
    Hide
    Reputation gems: You get these gems as you gain rep from other members for making good contributions and giving helpful advice.