Balance of Payments

What is a consequence of reducing current account deficit?

• Increase of import

• Redistribution of income

• Upward pressure on the currency

• Decrease in export

What would be an expenditure dampening policy through monetary policy?

• Increasing interest rate

• Decreasing interest rate

• Increasing government spending

• Decreasing tax rate

Why might a reduction in domestic interest rates have an adverse effect on a country’s balance of payment current account?

• It will cause a rise in the exchange rate.

• It will make the country’s industry less competitive.

• The resulting higher level of economic activity is likely to increase imports.

• There will be an outflow of capital from the country.

Which policy to correct a balance of payments deficit would be classified as an expenditure dampening policy?

• A devaluation of the exchange rate

• An increase in direct taxes

• An increase in import tariffs

• The introduction of import quotas

What would be an expenditure switching measure through monetary policy?

• Currency revaluation when there is current account deficit

• Currency devaluation when there is a current account surplus

• Currency devaluation when there is a current account deficit

• Imposing tariffs on imports

In the short run, which policy measure would tend to reduce a country’s balance of payments deficit but increase its inflation rate?

• A decrease in the level of import tariffs

• An appreciation of the country’s currency

• An increase in the level of indirect taxes

• A reduction in government spending

A policy designed to encourage people to change from buying foreign-produced products to buying domestically produced products, is known as…..

• Expenditure dampening measure

• Expenditure switching measure

• Expenditure expansion measure

• Expenditure loss measure

A policy designed to reduce imports and increase exports by reducing total level of spending is known as………..

• Expenditure expansion measure

• Expenditure switching measure

• Expenditure dampening measure

• Expenditure aggregate measure

Which is an expenditure switching measure through fiscal policy?

• Increasing tariffs on exports

• Decreasing government spending

• Increasing money supply

• Government imposing tariffs on imports

How would supply side policy reduce current account deficit?

• By reducing government spending

• By devaluating the currency

• By making domestic markets more attractive to invest in

• By making domestic products more price competitive