Which policy is listed as a way the government can manage the balance of payments?

• A. Do Nothing (Exchange rate will settle)
• B. Actively change exchange rates
• C. Trade barriers
• D. Buy/Sell currencies

Answer: (C)

When a government aims to influence the balance of payments, it can use policy tools that affect international trade and capital movements. Imposing trade barriers, such as tariffs or import quotas, directly changes the level of imports and can also influence exports by altering domestic production incentives. By reducing imports, the country improves the current account, which is the main part of the balance of payments, and this helps improve the overall BoP position.

Doing nothing leaves the BoP to adjust only through market forces, which may not actively improve the situation. Actively changing exchange rates or buying and selling currencies are forms of exchange-rate intervention; they can influence the value of the currency and capital flows, but they’re not as direct a method for targeting the trade balance as using trade barriers.