Th4.1: Expenditure Switching Policies Flashcards
What will tariffs or quotas do to imports?
reduce their attractiveness
How are tariffs and quotas likely to cause trade wars?
as other countries implement protectionist policies and so therefore may even worsen the deficit
Why are these protectionist policies almost impossible to implement?
given trading blocs and the laws of the WTO
What could they attempt to control and what would this do?
attempt to control inflation which will mean that the price of British goods rises slower than those in other countries, meaning they become more competitive over time
What is the problem with controlling inflation?
it will lead to a fall in demand for domestic goods and so therefore could cause unemployment and a fall in growth
They could also devaluate/depreciate the pound - why wold they want to do this?
this will make exports cheaper and imports dearer
Why might devaluating the pound not always work?
it is not feasible for many countries as they have a floating exchange rate and so central banks intervening in the market will only nudge the exchange rate for a short period of time
What is the best way to affect the value of currency?
by changing the interest rate, but this has affects on AD and so may not have the intended effect
What are the three possible expenditure switching policies?
tariffs or quotas
control inflation
devalue/depreciate the pound
What can all of these policies not do?
cannot solve long-term causes of a deficit
