Economics · Macroeconomics
The government of Country Alpha is deeply concerned about a persistent trade deficit, where the value of its imports significantly exceeds its exports. To address this, economic advisors propose a set of measures aimed at discouraging domestic consumption of foreign goods and making local products more attractive internationally. Which of the following policy combinations would be most consistent with an expenditure-switching strategy designed to correct Country Alpha's balance of payments deficit?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Reducing government expenditure and increasing income taxation.
- 2Lowering the national currency's exchange rate (devaluation) and imposing import tariffs.✓
- 3Running a significant budget surplus and providing subsidies to domestic exporters.
- 4Increasing domestic interest rates and implementing strict import quotas.
Correct answer
Lowering the national currency's exchange rate (devaluation) and imposing import tariffs.
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