Match the government's objective to protection, then develop how reduced imports or stronger domestic firms may affect jobs, tax revenue, demerit goods and the current account.
While 15% of US exports go to Mexico, 80% of Mexico's exports go to the US. In 2019, the US government imposed some methods of protection to reduce imports from Mexico. This US action caused a fall in Mexico's foreign exchange rate. Despite a rise in its inflation rate, Mexico's central bank reduced the rate of interest from 7.75\% at the end of 2019 to 6.5\% in March 2020.
Explain two reasons why a government may want to reduce imports.
Explain two reasons why a government may want to reduce imports.
Logical explanation which might include: To improve the current account of the balance of payments (1) reduce a current account deficit (1) move from a deficit to a surplus / move to a balance / achieve balance of payments stability (1) increase net exports (1). To increase GDP / economic growth (1) switch demand from imports to domestically produced products / increase demand for domestically produced goods / protect domestic firms (1) allow infant industries to grow (1) Prevent dumping (1) the sale of goods from abroad at below cost / predatory prices (1).
To increase employment / reduce unemployment (1) to raise living standards (1).
To reduce dependence on other countries / make the country more independent (1) as risk of supplies being cut off / price being increased (1).
To stop / reduce a fall in the exchange rate (1) less of the currency will be sold to buy imports (1).
4
One mark for each of two reasons identified and one mark for each explanation. So, for improve balance of payments reason, there is a maximum of 2 marks.