expenditure reducing and switching policies

Question 1

expenditure reducing policy

Answer 1

-reduce spending on imports, (contractionary monetary and fiscal policy)
-but: conflict of objectives, confidence, output gap (already at full employment) , MPM

Question 2

expenditure switching policy

Answer 2

-protectionsim: tariffs, quotas, tariff certain import on g/s or switch spending to exports. money used to spend on imports can be spent on domestic. but: retaliation (put worse tariffs), wto rules (fines), inflationary, higher prices for consumers

-weaker exchange rates (decrease interest rates, increase supply). but: marshall-lerner condition, inflationary (expensive imports, increase AD), retaliation

Question 3

supply-side policies for current account deficit

Answer 3

-boost international competitiveness
but: time cost, no guarantee of success

Question 4

evaluation of current account deficit

Answer 4

-conflict of objectives
-cause of deficit
-time lags
-is it a problem