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1.Why do the balance-of-payments balance? Explain.

2.What is a balance-of-payments deficit, and what is a balance-of-payments surplus? What role do official reserves play in the matter?

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Balance-of-payments is discussed very comprehensively in this explanation..

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1. Why do the balance-of-payments balance? Explain.
When all the parts of the balance of payments are included in the balance of payments sheet it must add up to zero. This is called the balancing of the balance of payments. The reason is that on the balance of payment sheet there cannot be an overall surplus/deficit. The gap has to be closed. If there is a trade deficit, the gap will have to be covered thorough other means like direct investments from foreign countries, loans from foreign countries or earnings from ...

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