Practise comparing expenditure-reducing, expenditure-switching, protectionist and supply-side policies for current-account imbalances and evaluating their time horizon and costs.
Why may a government seek to reduce a current account surplus on the balance of payments?
to lower inflation
to lower unemployment
to raise the economic growth rate
to raise the exchange rate
A
Which combination of policies would be most effective in reducing a balance of payments current account surplus?
a decrease in
tariffs on imports
a devaluation of the
exchange rate
an expansionary
monetary policy
no
yes
no
no
no
yes
yes
no
yes
yes
yes
no
C
A government raises interest rates to improve the current account of the balance of payments.
What might reduce the effectiveness of this policy?
a fall in domestic growth
consumer pessimism
increased domestic saving
price-elastic demand for exports
D