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An economy's government with fixed exchange rate wants to reduce its balance of payment surplus (not using expenditure-switching policies).

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An economy's government wants to reduce its current account deficit without causing inflation.

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1. Nyeo

2. Nicholas

3. Ming Hui

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1. Reduce current account deficit

2. Without causing inflation.

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An economy's government with fixed exchange rate wants to reduce its current account deficit.

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1. Xavier 👌🏼💯
2. Priscilla 🔱⚡️
3. Madiha 🦄🎄

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Reduce current account deficit

But do not cause inflation

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Answer:

3. Increase in direct tax

When direct tax increases, it will only decrease consumer's purchasing power without causing inflation in price level because direct tax is a tax which cannot shift burden to consumer. As consumers' consumption and investment reduce due to lower purchasing power, AD will shift left and causes both PL and RGDP to fall. National income will therefore be reduced. The demand for imported goods will reduce as consumers now has lesser disposable income and this will reduce current account deficit.

Answer:

5. increase interest rates

When interest rate increases, the cost of borrowing and returns on saving will increase. This will lead to a reduction in consumption and investment. As consumers' consumption and investment reduce , AD will shift left and causes both PL and RGDP to fall. National income will therefore be reduced. The demand for imported goods will reduce as consumers now has lesser disposable income and this will reduce current account deficit.

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An economy's government wants to reduce the downward pressure on its exchange rates that is caused by current account deficit using expenditure-damping policies.

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1. Fixed exchange rate
2. Current account deficit

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Improve current deficit

Maintain the fixed exchange rate

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Answer:

3. Increase in direct tax

Increase in direct tax
As direct tax increases, consumer's disposable income decreases. As disposable income decreases, people would demand for less imports. This would aid with improving the current account deficit. As demand for import decreases, it would reduce the supply of currency in the currency market, pushing the exchange rate back to the initial fixed exchange rate and removes the downward pressure.

Answer:

5. Increase in interest rates

Increase in interest rate
As the interest rate increase, the cost of borrowing increases, returns on domestic borrowing increases and the returns on foreign investment increases. As the cost of borrowing increases, people would borrow less money, and as returns on domestic savings increases, people would rather save their money in the bank. People have less money to spend, therefore they would demand for less imports, this would help improve the current account deficit.

The returns on foreign investment increases and this encourages foreign investment as well as hot money flow. In order to invest or store money, local currency is demanded and this pushes the demand curve to the right.

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1. Ruby🌷
2. Dorcas🦋
3. Joyce🏀

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1. Reduce downward pressure

2. Current account deficit

3. Expenditure-damping policies

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Reduce spending on import

Make the currency appreciate

Increase export

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Answer:

3. Increase in direct tax

Increase in direct tax,
Decrease disposable income
Decrease consumption and investment,
Decrease AD,
Decrease RGDP,
Decrease national income,
Decrease spending on import,
current account deficit improved,
Supply of currency falls,
Appreciation

Answer:

5. increase interest rates

Increase in interest rates,
Increase cost of domestic borrowing,
Increase return of domestic savings
Decrease consumption and investment,
Decrease AD,
Decrease RGDP,
Decrease national income,
Decrease spending on import,
current account deficit improved,
Supply of currency falls,
Appreciation

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1. Fixed exchange rate

2. Balance of payment surplus

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1. Jasy💩
2. ycman🐶
3. CWH

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Maintain the fix exchange rate (D ↓ or S ↑)

Reduce current account surplus

Increase imports/ decrease export

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Answer:

4. Decrease in direct tax

Decrease direct tax
Disposable income increase
Consumers buy more imports
Supply of currency increase
Reduce balance of payment surplus
Supply curve currency shift from S to S1 and upward pressure is being reduced

Answer:

6. Decrease interest rates

Decrease in interest rate
When there is a decrease in interest rate, the foreign investment will decrease, then inflow reduces and BOP surplus will be reduced. At the same times, the demand for currency will decrease due to lower foreign investment, the demand curve shift from D to D1, exchange rate is maintained and upward pressure is being reduced.

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An economy's government wants to reduce the upward pressure on its exchange rates that is caused by current account surplus using expenditure-switching policies.

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1. Chai Xian
2. Ai Ran
3. Yong Hong

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1. Upward pressure on exchange rate

2. Current account surplus

3. Expenditure-switching policy

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Maintain exchange rate

Reduce current account surplus

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Answer:

1. Decrease in tariff

Tariff on imports decrease
Price of imports decrease
Quantity of imports increase
Supply of currency in foreign market increase
Value of currency depreciate
Thus, reduction in upward pressure and reduction in current account surplus are both achieved.

Answer:

2. Decrease in subsidies

Subisidies for exporters decrease
Cost of production increase
Price of exports increase
Quantity of export decrease
Demand for currency in foreign market decrease
Value of currency depreciate
Thus, reduction in upward pressure and reduction in current account surplus are both achieved.