Economics explained
Category:
Policies to correct balance of payments disequilibrium
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.
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.