How do contractionary policies help correct a balance of payments deficit?

Question

Quizplus · Accepted Answer

Contractionary policies are designed to decrease domestic demand and reduce imports. This can help correct a balance of payments deficit by reducing the outflow of money for imports, thus improving the balance of trade. Lowering domestic incomes will reduce demand for imports, and lowering demand for imports will prevent a further outflow of money from the economy. Therefore, D is the correct answer.

How Do Contractionary Policies Help Correct a Balance of Payments