In most cases,expenditure-switching policies must be accompanied by expenditure-reducing policies because
A)expenditure-switching policies are completely ineffective without expenditure-reducing policies.
B)inflation ensues as home country domestic expenditures switch away from foreign goods to domestic goods unless overall expenditures are reduced.
C)inflation abroad may increase the demand for domestic goods,causing inflation to rise.
D)the depreciation in the exchange rate may decrease the domestic price of foreign goods,causing an increase in the current account deficit.
E)None of the above.

Question

Quizplus · Accepted Answer

Expenditure-switching policies aim to redirect domestic expenditure from foreign goods to domestic goods, which can lead to inflation unless overall expenditures are reduced through expenditure-reducing policies. This is because increased demand for domestic goods may lead to higher prices and inflation. Therefore, to control inflation, both expenditure-switching policies and expenditure-reducing policies are needed. Options A, C, and D either do not provide a complete explanation or are incorrect.

In Most Cases,expenditure-Switching Policies Must Be Accompanied by Expenditure-Reducing Policies