Expenditure reducing policies

An expenditure dampening or reducing policy is any action taken by a government that is designed to reduce the total level of spending in an economy.



An expenditure dampening or reducing policy is any action taken by a government that is designed to reduce the total level of spending in an economy.

Such a policy has two effects.

A reduction in spending,

There will be fewer purchases of imported goods and services.

Domestic producers will find that their domestic market is ‘dampened’.

As a result, they may try to make up for the decrease in domestic sales with an increase in sales abroad.

Overall

The overall effect, therefore, of an expenditure dampening policy may be a fall in imports and a rise in exports.


Deflation as an expenditure-reducing policy

Deflationary policy involves using ...

Deflationary fiscal policy
Deflationary monetary policy

...to reduce the demand for imports.