In order to correct adverse balance of payments problem, government should?

Answer Details

In order to correct an adverse balance of payments problem, the government should increase exports and/or reduce imports. This can be achieved through a combination of policies, including: 1. Devaluation of the domestic currency: This makes exports cheaper and imports more expensive, thereby increasing the demand for domestic goods and reducing the demand for foreign goods. 2. Export promotion: This includes providing subsidies, tax incentives, and other forms of support to domestic firms that export goods and services. 3. Import substitution: This involves encouraging domestic production of goods that are currently imported, through measures such as tariffs, quotas, and other trade barriers. 4. Reduction of government spending: This can help to reduce imports and conserve foreign exchange reserves. 5. Fiscal and monetary policies: The government can use fiscal and monetary policies to control inflation, maintain exchange rate stability, and promote economic growth. In summary, the government has a range of policy tools to correct an adverse balance of payments problem, including currency devaluation, export promotion, import substitution, reduction of government spending, and fiscal and monetary policies. The specific combination of policies will depend on the nature and severity of the balance of payments problem, as well as the country's overall economic goals and priorities.