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Disequilibrium in BOP – When the Scale Tips! ⚖️

Equilibrium: Receipts (Inflow) = Payments (Outflow). Disequilibrium: Receipts ≠ Payments.

It can be of two types:

  1. Surplus (Favorable): Receipts > Payments. (Good? Usually, but too much surplus causes inflation).
  2. Deficit (Unfavorable): Receipts < Payments. (Bad. You are losing money).

Types of Disequilibrium 🔄

1. Cyclical"Due to Business Cycles (Boom/Recession)"
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2. Secular (Long Term)"Due to deep economic changes (e.g., Tech shift)"
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3. Structural"Change in Demand/Supply (e.g., Oil price hike)"
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4. Temporary"Short term (e.g., Bad monsoon)"

1. Cyclical 🔄

  • Happens due to trade cycles.
  • Boom: Imports rise (People have money).
  • Recession: Exports fall.

2. Structural 🏗️

  • Fundamental change in economy.
  • Example: India used to export Jute. Plastic bags replaced Jute. India's Jute exports crashed. This is structural.

3. Fundamental (Secular) 🐢

  • Long-term, chronic disequilibrium. Very dangerous.
Is Surplus always good?

Not always! If you have a huge surplus, your currency value rises (Appreciation). This makes your exports expensive, and eventually, your exports will fall. Balance is best.

Quiz Time! 🎯

Test Your Knowledge

Question 1 of 5

1. Disequilibrium occurs when:

Receipts = Payments
Receipts ≠ Payments
Exports = Imports
None

💡 Final Wisdom: "A small fever (Temporary Disequilibrium) is fine. A chronic disease (Structural Disequilibrium) needs surgery!" 🏥

Next up: Causes of Disequilibrium - Why does it happen? 🕵️‍♂️

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