To reduce the trade deficit and to increase the output of a country in the short-run, which of the…
Devaluation of the domestic currency is the expenditure-switching policy used to improve external balance and stimulate domestic output. It makes domestic goods cheaper…
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To reduce the trade deficit and to increase the output of a country in the short-run, which of the following policies should be taken?
Answer and explanation
Correct answer A
Devaluation of the domestic currency is the expenditure-switching policy used to improve external balance and stimulate domestic output. It makes domestic goods cheaper relative to foreign goods, encouraging exports and substitution away from imports. Monetary contraction instead restrains demand and output.
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West Bengal SET (WB SET)