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

Syllabus: Explain the methods that a government can use to correct a persistent current account deficit, including

expenditure switching policies,

expenditure reducing policies and

supply-side policies to increase competitiveness.

Evaluate the effectiveness of the policies to correct a persistent current account deficit.

There are three 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 include tariffs and protectionism in general and manipulation of exchange rates to change the relative prices of imports.

 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 include increasing direct tax, cutting government expenditure or increasing interest rates (You may be asked  to analyse this - use AD/AS analysis)

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.

3. Supply Side policies-aimed at improving the competitiveness of domestic firms. Supply side policies include QQI which is as you already know increasing the Quantity and/or Quality of Factors of Production and increasing the Infrastructure of the economy.

Let´s do Some Economics

Read the article 'Buy Brazilian Act´ and then answer the questions below.

http://thebrazilbusiness.com/article/buy-brazilian-act