In an open economy without government intervention trade de cit can be nanced by ........

Economic Affairs Others

In an open economy without government intervention, trade de?cit can be ?nanced by

Foreign institutional investment

Domestic consumption

Monetary expansion

All of the above

Total balance of payments consists of current account (includes trade, invisibles, remittances etc.) as well as capital account.

Option A: Capital inflows like FDI, FII help bridge the trade deficit and neutralize BoP.

Option B: High consumption expenditure will further inflate the import bill and cause trade deficit.

Option C: And, so will monetary expansion – pushes up demand and thus imports in the short-term aggravating the BoP.

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