Effect Of Fiscal, Monetary, Supply Side And Protectionist Policies On The Current Account
Economics notes
Effect Of Fiscal, Monetary, Supply Side And Protectionist Policies On The Current Account
➡️ Increase exports: The government can implement policies to encourage exports, such as providing tax incentives to exporters, reducing tariffs on imported inputs, and providing subsidies to exporters.
➡️ Reduce imports: The government can implement policies to reduce imports, such as increasing tariffs on imported goods, introducing import quotas, and providing subsidies to domestic producers.
➡️ Increase savings: The government can encourage households and businesses to save more by providing tax incentives for savings, increasing interest rates, and providing financial education.
How does fiscal policy affect the current account?
Fiscal policy can have a direct effect on the current account by influencing the level of government spending and taxation. Government spending can increase the demand for imports, while taxation can reduce the amount of disposable income available for imports. Additionally, fiscal policy can also affect the current account indirectly by influencing the level of economic activity, which in turn affects the demand for imports.
How does monetary policy affect the current account?
Monetary policy can affect the current account by influencing the level of interest rates and exchange rates. Lower interest rates can encourage borrowing from abroad, while higher interest rates can discourage borrowing from abroad. Additionally, changes in exchange rates can affect the relative prices of imports and exports, which can also affect the current account.
How do supply side and protectionist policies affect the current account?
Supply side policies can affect the current account by influencing the level of economic activity and the cost of production. Lower production costs can make exports more competitive, while higher production costs can make imports more attractive. Protectionist policies, such as tariffs and quotas, can also affect the current account by making imports more expensive and reducing the demand for imports.