The policies that might be used to correct a balance of payments deficit or surplus
Governments use several tools to fix a current account imbalance. These tools either reduce overall spending in the economy or redirect spending away from imports and towards domestic goods.
Real World
In 2015–16, China's government actively depreciated the yuan to make its exports more price-competitive globally, a classic exchange rate policy used to correct an emerging current account squeeze.
Exam Focus
Always state the time lag and Marshall-Lerner condition when evaluating devaluation — marks are lost without acknowledging the J-curve effect.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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