Assume a country lacks technical innovation in its domestic industries and, as a result, experiences a severe decline in exports.What kind of policy should this country employ to get back to a situation of internal and external balance?

Question

Quizplus · Accepted Answer

To address the situation of declining exports due to lack of technical innovation in domestic industries, this country should employ an expansionary fiscal policy to encourage investment and innovation in these industries. At the same time, the country should also levy tariffs on imports to protect its domestic industries from competition with cheaper imports. This combination of policies can help achieve both internal and external balance by boosting domestic production and reducing reliance on exports. An increase in government spending or restrictive monetary policy may not be effective in promoting innovation, while an increase in tariffs alone may not be enough to stimulate domestic production. Expansionary monetary policy combined with restrictive fiscal policy may lead to inflation and budget deficits.

Assume a Country Lacks Technical Innovation in Its Domestic Industries