Match each balance of payments policy action on the left with the correct economic mechanism on the right used to address a deficit.
- Import quotasDirect trade restriction to limit foreign product inflows
- Increase in bank reserve requirementsMonetary contraction to decrease domestic credit and overall demand
- Currency devaluationExchange rate alteration to make exports cheaper and imports costlier
- Reduction in public spendingFiscal contraction to lower domestic income and import absorption
Answer
Import quotas match direct trade restrictions; increase in bank reserve requirements matches monetary contraction; currency devaluation matches exchange rate alteration; and reduction in public spending matches fiscal contraction.
Each adjustment measure correctly pairs with its economic operation: import quotas use administrative volume limits to restrict imports; higher reserve requirements suppress monetary growth to reduce total spending; devaluation uses relative price shifts to switch consumption to domestic products; and cutting public spending reduces aggregate demand via fiscal tightening.
Step-by-Step Solution
Key Concept
Classification of Balance of Payments Adjustment Policies
Estimated Time:1m 0s