Foreign currency gap

Question 1

A foreign currency gap

Answer 1

A foreign currency gap increases the price of imports and can lead to inflation in an economy.

Question 2

When countries import more than they export it’s called a…

Answer 2

Current account deficit, trade deficit.

Question 3

A foreign currency gap

Answer 3

A foreign currency gap is when net outflows or exports of foreign currency are greater than net inflows or imports .

Question 4

What does a foreign currency gap lead to

Answer 4

A foreign currency gap leads to a depreciation in the value of a country’s currency. This is problematic for countries with a trade deficit . An increase in the price of imports leads to cost-push or cost push inflation, which will in turn lead to an economic downturn.

Question 5

What has diversification done to foreign currency gap

Answer 5

Diversification led to an increase in demand for Ethiopian exports which means the demand for Ethiopian currency has increased or risen or grown . As a result, Ethiopia’s foreign currency gap has closed or reduced or fallen or decreased and the price of imports has fallen or reduced or decreased .

Question 6

Limitation of diversification on foreign currency gsp

Answer 6

only seen in the long run

Question 7

What will happen in the short run den

Answer 7

The policies required for economic diversification (tax breaks n gov’t spending) may lead to an increased budget deficit and an increase in the levels of national debt .

Question 8

Effects of diversification

Answer 8

Countries like Ethiopia have diversified their exports. This has increased demand for the Ethiopian Birr and decreased the price of imports .