Which TWO of the following policy actions might be available to a government that wishes to reduce a deficit in the balance of payments? (Choose two.)
A) Devaluate the exchange rate in order to increase exports.
B) Increase the money supply in order to stimulate domestic consumption.
C) Appreciate the exchange rate in order to reduce imports.
D) Reduce the interest rate in order to stimulate investment.
E) Introduce tariffs on imported goods in order to favour domestic producers.

Question

Quizplus · Accepted Answer

Devaluing the exchange rate makes exports cheaper and imports more expensive, which can help to reduce a deficit in the balance of payments. Tariffs on imported goods can also help to reduce a deficit by making imported goods more expensive and encouraging consumers to buy domestic goods instead.

Which TWO of the Following Policy Actions Might Be Available