CAIE A-Level Economics 11.1.3 Expenditure-switching and Reducing Policies

CAIE A-Level Economics 11.1.3 Expenditure-switching and Reducing Policies
Cambridge International AS & A Level Economics 9708 syllabus for exams in 2026, 2027 and 20282026–2028

Practise distinguishing policies that redirect spending to domestic output from those that reduce total spending and evaluating each under elasticity and employment conditions.

How this is tested

  • classify tariffs, quotas, export subsidies or depreciation as expenditure-switching tools
  • classify higher taxes or interest rates and lower government spending as expenditure-reducing
  • evaluate success using import and export elasticities, marginal propensity to import and spare capacity

Question 26

[Maximum number: 1]

A country has a deficit on the current account of the balance of payments. The government can try to reduce this deficit by using either an expenditure-switching policy or an expenditure-reducing policy.

Under which conditions will an expenditure-reducing policy be more successful than an expenditure-switching policy?

price elasticity
of demand for
imports

price elasticity
of demand for
exports

marginal
propensity to
import

0.2

0.2

0.1

0.2

0.2

0.4

0.6

0.2

0.1

0.6

0.6

0.4