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Economics explained


Policies to correct balance of payments disequilibrium

Expenditure reducing policies - Fiscal policy

Expenditure reducing policies - Fiscal policy

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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.


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 reduce the demand for imports.

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