International economics

Table of Contents

1. Topic pack - International economics - introduction
2. Section 3.1 International trade (notes)
3. Section 3.1 International trade (questions)
4. Section 3.1 International trade - simulations and activities
5. Section 3.2 Exchange rates (notes)
6. Section 3.2 Exchange rates - questions
7. Section 3.2 Exchange rates - simulations and activities
8. Section 3.3 Balance of payments - notes
   1. BOPs - introduction
   2. Credits and debits
   3. Current account
   4. Capital account
   5. Financial account
   6. Relationship between accounts
   7. Balance of payments - calculation
   8. Current account & floating exchange rate
   9. Current account & fixed exchange rate
   10. Balance of payments problems
   11. Consequences of deficit / surplus
   12. Policies to correct a balance of payments disequilibrium
   13. Consequences of a financial account deficit / surplus
   14. Marshall-Lerner condition
9. Section 3.3 Balance of payments - questions
10. Section 3.4 Economic integration - notes
11. Section 3.4 Economic integration - questions
12. Section 3.5 Terms of trade - notes
13. Section 3.5 Terms of trade - questions
14. Print View

Policies to correct a balance of payments disequilibrium

There are two types of policy to correct a balance of payments deficit. They are:

1. Expenditure-switching policies - these are policies that are aimed at encouraging people to switch their spending from imported goods to domestic goods. These policies might include tariffs and protectionism in general, manipulation of exchange rates to change the relative prices of imports and supply-side policies aimed at improving the competitiveness of domestic firms. In the past, countries have used marketing measures to promote the buying of national goods and services.

2. Expenditure-reducing policies - these are policies that aim to reduce domestic expenditure and therefore reduce the level of imports. The main expenditure-reducing policies are deflationary monetary and fiscal policies. These may include increasing tax, cutting government expenditure or increasing interest rates. The impact of these policies would be to reduce the level of aggregate demand and therefore the demand for imports. The extent of this improvement will depend on the income elasticity of demand for imports. The higher the income elasticity, the greater the improvement there will be in the current account.