Correcting a Current Account Deficit (HL only)
Balance of Payments
AO2·HL
Syllabus requirement
Measures like expenditure-switching (e.g. tariffs, devaluation), expenditure-reducing (e.g. contractionary fiscal/monetary policy), and supply-side policies.
Assessment objectives
AO2 Application and Analysis
Higher LevelThis topic is assessed at HL.
Summary
This HL text discusses policies for correcting a current account deficit and explains why many of those policies may fail or have harmful side effects. It emphasises that non-price factors and price elasticities of demand affect the success of expenditure-switching measures, that trade protection and devaluation can produce negative consequences, and that expenditure-reducing and supply-side policies have significant economic trade-offs.