top of page

Economics explained


Policies to correct balance of payments disequilibrium

Expenditure switching policies

Expenditure switching policies

The secret to scoring awesome grades in economics is to have corresponding awesome notes.
A common pitfall for students is to lose themselves in a sea of notes: personal notes, teacher notes, online notes textbooks, etc... This happens when one has too many sources to revise from! Why not solve this problem by having one reliable source of notes? This is where we can help.
What makes TooLazyToStudy notes different?
Our notes:
  • are clear and concise and relevant
  • is set in an engaging template to facilitate memorisation
  • cover all the important topics in the O level, AS level and A level syllabus
  • are editable, feel free to make additions or to rephrase sentences in your own words!

    Looking for live explanations of these notes? Enrol now for FREE tuition!

Direct controls

Direct control is an example of expenditure-switching policies and affects the balance of payments by changing the relative price of home-produced and foreign goods.

Direct controls involve imposing quotas or even outright bans (embargoes) on imports.

These directly cut or prevent expenditure on imports and, as a result, people switch their spending from foreign to home-produced goods.

A government may impose a tariff or increase an existing tariff on imports.

This will encourage domestic consumers and firms to switch to buying domestic products.

Limitation: Imposing tariffs may provoke retaliation and reduce the pressure on domestic firms to become more efficient.

Monetary policy

A government may decide to alter its exchange rate as an expenditure switching measure.

If an economy is experiencing a current account surplus and has a fixed exchange rate, the government may decide to revalue its currency.

Raising the foreign exchange rate will raise export prices and lower import prices.

In the case of a current account deficit, a government may consider devaluing the currency.

In this case, export prices will fall and import prices will rise.

Limitation: Lowering the exchange rate will not work if demand for exports and imports is price inelastic or if the relative quality of the country’s products falls.

bottom of page