Question 5
[Maximum number: 20]
'The use of tariffs is the most effective way to correct a balance of payments deficit.'
With the help of a diagram, evaluate this statement.
CAIE A-Level Economics 11.1 Correcting Balance of Payments Disequilibrium Question Bank
Practise classifying balance-of-payments accounts and comparing expenditure-switching, expenditure-reducing, supply-side and protectionist policies for correcting external…
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
Question 25
[Maximum number: 1]
Which statement about the components of the balance of payments is correct?
A
The current account consists of transactions in goods, services, investment income and remittances between countries.
B
The current account consists of transactions in goods, services, and portfolio investment between countries.
C
The financial account consists of transactions in financial assets, investment income and remittances between countries.
D
The financial account consists of transactions in fixed assets, investment income and the balancing item between countries.
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