Current Account Deficit

Question 1

What are the 3 policies to correct the current account deficit

Answer 1

Deflation

Devaluation

Direct controls

Question 2

Deflation

Answer 2

Any policy designed to reduce AD this mean falling incomes and spending and fewer imports while exports unchanged

No govement is likely to encourage as it conflicts with domestic macroeconomic objectives

Question 3

What type of policy is inflation ?

Answer 3

Expenditure reducing policy - designed to reduce trade deficit by reducing demand for imports

Question 4

Devaluation

Answer 4

Deliberate weakening of exchange rate

Allows depreciation under floating exchange rate system

Could be caused by cutting Intrest rates

Question 5

Direct controls

Answer 5

Protectionist measure such as tariffs embargoes , quotas etc

Question 6

Expenditure switching policies

Answer 6

Designed to reduce trade deficit promoting purchase of domestic goods making them relatively cheaper than imports