Q.Explain the monetary measures used to correct disequilibrium in the Balance of Payments.

Monetary measures work through the currency's value and the domestic money supply to make exports more attractive and imports less so. …

(1) Devaluation — the government/central bank officially reduces the external (exchange-rate) value of the domestic currency against other currencies. This makes the country's exports cheaper (and more attractive) to foreign buyers, and imports costlier for domestic buyers, which should raise exports and cut imports — narrowing a deficit.

(2) Deflation — a deliberate policy of contracting the money supply and available credit, which reduces domestic prices and demand. Lower domestic prices make exports more price-competitive abroad, and reduced overall demand also cuts import demand. …

Confusing devaluation (an official, one-time policy action) with depreciation (a market-driven fall in currency value under a floating exchange-rate system) — the syllabus …