Question on: JAMB Economics - 2002

A balance of payments problem arises when a country spends more on imports and investments abroad than it earns from exports and investments from abroad. Devaluing a currency makes exports cheaper for foreign buyers and imports more expensive for domestic consumers. This can help correct the balance of payments problem by increasing exports, decreasing imports, and ultimately reducing the deficit (or increasing the surplus). * **A.** is incorrect because import-promotion measures would likely worsen the balance of payments by increasing imports. * **B.** is incorrect because buying investments abroad would further deplete the country's foreign reserves, worsening the balance of payments. * **D.** is incorrect as de-emphasizing import-substitution industries does not directly address the balance of payments issue.