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Measures to Correct BOP Disequilibrium – The Cure! 💊

We have a deficit. We are losing dollars. How do we fix it? Goal: Increase Exports (Earn $) or Decrease Imports (Save $).

1. Monetary Measures (Money Tricks) 💱

A. Devaluation 📉

  • Action: Government officially lowers the value of its currency.
  • Effect:
    • $1 was ₹50. Now $1 is ₹80.
    • For Foreigners: Indian goods become Cheaper. (They buy more -> Exports Rise).
    • For Indians: Foreign goods become Expensive. (We buy less -> Imports Fall).
  • Result: BOP improves.

B. Deflation 📉

  • Reduce money supply in the economy. Prices fall. Exports become competitive.

C. Exchange Control 🚫

  • Government says: "You cannot buy Dollars without permission." Rationing of forex.

2. Non-Monetary Measures (Trade Tricks) 🚢

A. Tariffs (Import Duty) 🛡️

  • Tax imports heavily.
  • If iPhone costs ₹1 Lakh + ₹50k Tax, people will buy Samsung (Indian). Imports fall.

B. Quotas (Quantity Limits) 🔢

  • "Only 1000 cars can be imported this year."

C. Export Promotion 🚀

  • Give subsidies, tax breaks, and awards to exporters. Encourage them to sell more.

D. Import Substitution 🇮🇳

  • "Make in India". Instead of importing, make it at home.
Devaluation vs Depreciation

Devaluation: Government does it officially (Fixed Rate System). Depreciation: Market does it (Demand/Supply). Both have the same effect: Exports become cheaper, Imports become expensive.

Quiz Time! 🎯

Test Your Knowledge

Question 1 of 5

1. Devaluation makes exports:

Expensive
Cheaper
Same price
Banned

💡 Final Wisdom: "Devaluation is a bitter pill. It fixes the BOP but makes petrol and electronics expensive for the common man. It's a necessary evil." 💊

🎉 UNIT II COMPLETE! You have mastered the Economics of Foreign Trade!

Next epic: Unit III: Indian Trade Policy - How India manages its trade! 🇮🇳

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