Which of the following policy measures CANNOT be used to reduce a current account deficit?
A)a tariff on imported goods
B)a devaluation of the currency
C)restrictive monetary policy
D)expansionary fiscal policy
E)a combination of A)and C)

Question

Quizplus · Accepted Answer

An expansionary fiscal policy would increase government spending and decrease taxes, which would stimulate demand for imports and worsen the current account deficit. Therefore, it cannot be used to reduce a current account deficit. Choices A, B, and C can all be used to reduce a current account deficit. A tariff on imported goods would make them more expensive, discouraging imports and encouraging exports. Devaluing the currency would lower the relative price of exports and raise the relative price of imports, also encouraging exports and discouraging imports. Restrictive monetary policy would increase interest rates, making domestic assets more attractive and reducing demand for foreign assets, which would result in a lower current account deficit. Choice E is also a possible measure that could reduce the current account deficit.

Which of the Following Policy Measures CANNOT Be Used to Reduce