The appropriate expenditure-switching policy to correct a current account deficit is:
A) Contractionary monetary policy
B) Expansionary fiscal policy
C) Currency devaluation
D) Currency revaluation

Question

Quizplus · Accepted Answer

A currency devaluation will make exports cheaper, which will increase foreign demand and increase the demand for domestic goods. Additionally, it will make imports more expensive, which will discourage imports and increase the demand for domestic substitutes. This will lead to an increase in exports and a decrease in imports, thereby correcting the current account deficit.

The Appropriate Expenditure-Switching Policy to Correct a Current Account Deficit