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CAIE A-Level Economics A2 11.1 Policies to Correct Disequilibrium in the Balance of Payments Questions

Practise classifying balance-of-payments accounts and comparing expenditure-switching, expenditure-reducing, supply-side and protectionist policies for correcting external…

Syllabus
2026–2028
Course
Economics 9708
Level
A2

Exam points

  • classify current, capital and financial flows before diagnosing the source of disequilibrium
  • trace switching policies through relative prices and reducing policies through income and imports
  • evaluate correction through elasticities, multiplier effects, inflation, unemployment and retaliation

Covered syllabus points

11.1.1—Balance of payments accounts11.1.2—Policies and balance of payments11.1.3—Switching vs reducing policies

Question 1

[Maximum number: 1]

All else remaining unchanged, what would result in an outflow of capital funds from a country?

A

a fall in the country's rate of inflation

B

an expected appreciation of the country's exchange rate

C

an increase in foreign interest rates

D

an increase in foreign prices

Question 2

[Maximum number: 1]

The government of Lesotho introduces a programme to promote exports and to encourage firms to expand by subsidising local entrepreneurs.

What effect is this likely to have on incomes, the balance of payments current account deficit and government expenditure in Lesotho?

incomes

balance of
payments current
account deficit

government
expenditure

fall

reduce

rise

fall

uncertain

rise

rise

reduce

no change

rise

uncertain

rise

Question 3

[Maximum number: 1]

What is not an example of an expenditure-reducing policy?

A

a decrease in government spending

B

a depreciation of the exchange rate

C

an increase in direct taxes

D

an increase in interest rates

All question bank results loaded