Quiz on Balance of Payments

What is the primary goal of supply-side policies in relation to the current account?

• To reduce the exchange rate

• To ensure strong export industries

• To raise import tariffs

• To increase government spending

What do expenditure-switching policies aim to achieve?

• Switch expenditure from imports to domestic goods

• Increase imports

• Reduce government spending

• Increase the exchange rate

Which of the following is an example of an expenditure-reducing policy?

• Implementing quotas on exports

• Increasing direct tax rates

• Devaluing the currency

• Increasing tariffs on imports

What is a potential negative effect of deflationary fiscal policies?

• Increase in domestic employment

• Increase in economic growth

• Political unpopularity

• Decrease in interest rates

What might happen if a government increases interest rates?

• Decrease in capital flows from abroad

• Increase in domestic investment

• Attraction of foreign capital

• Decrease in mortgage payments

Why might governments be reluctant to use protectionist measures?

• They are always effective

• They can lead to retaliation

• They are supported by WTO agreements

• They increase competition

What is the effect of expenditure-reducing policies on aggregate demand?

• No effect on AD

• Increase AD significantly

• Shift AD to the left

• Shift AD to the right

What is a potential conflict when implementing expenditure-reducing policies?

• Improvement in current account and economic growth

• Reduction in current account deficit and domestic employment

• Increase in domestic consumption and imports

• Decrease in interest rates and inflation

What is the main goal of expenditure-switching policies?

• To increase tariffs on exports

• To increase overall expenditure

• To reduce the value of the currency

• To improve the current account by reducing imports