An expenditure reduction policy is something like a tax increase or a reduction in government spending, whereas the classic example of an expenditure switching policy, which switches demand from foreign to domestic goods, are tariffs (and perhaps exchange rate changes if there is price rigidity) .
Which policy is an expenditure switching policy?
Expenditure switching is a macroeconomic policy that affects the composition of a country’s expenditure on foreign and domestic goods. More specifically it is a policy to balance a country’s current account by altering the composition of expenditures on foreign and domestic goods (see Balance of payments account).
What is an example of expenditure switching policy?
These are policies designed to change the relative prices of exports and imports to help reduce the size of a country’s external deficit. For example – an exchange rate depreciation can improve the price competitiveness of exports and make imports more expensive when priced in a domestic currency.
What is an example of an expenditure reducing policy?
These are policies designed to lower real incomes and aggregatedemand and thereby cut the demand for imports. E.g. higher direct taxes , cuts in government spending or an increase in monetary policy interest rates.
What type of policy is tariff?
A tariff is a tax imposed by a government of a country or of a supranational union on imports or exports of goods . Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and policy that taxes foreign products to encourage or safeguard domestic industry.
What do you mean by transfer expenditure?
A transfer payment is a payment of money for which there are no goods or services exchanged . Transfer payments commonly refer to efforts by local, state, and federal governments to redistribute money to those in need. In the U.S., Social Security and unemployment insurance are common types of transfer payments.
What are the objectives of public expenditure?
In the modern era, public expenditure has the following objectives: (a) provision of collective wants in order to optimise society’s consumption in a rational way and to maximise social and economic welfare. (b) Control of the depressionary tendency in the market economy.
What is expenditure reducing policy?
Measures a government may undertake to improve an imbalance in the current account . Reducing overall spending in the economy (including on imports) by raising income taxes and reducing government spending (contractionary fiscal policies) can improve the trade balance. ...
How do you solve a current account deficit?
- Devaluation of exchange rate (make exports cheaper – imports more expensive)
- Reduce domestic consumption and spending on imports (e.g. tight fiscal policy/higher taxes)
- Supply side policies to improve the competitiveness of domestic industry and exports.
What are the effect of devaluation of exchange rate?
The main effects are: Exports are cheaper to foreign customers . Imports more expensive . In the short-term, a devaluation tends to cause inflation, higher growth and increased demand for exports.
What are expenditure policies?
• Public expenditure policy is a continuous political/bureaucratic . process through which governments decide: (i) which activities. should be undertaken by the government; and (ii) what is the. most efficient way of producing those public sector outputs. Expenditure Policy.
Which of the following is the benefit of floated exchange rate?
Floating exchange rates have these main advantages: No need for international management of exchange rates : Unlike fixed exchange rates based on a metallic standard, floating exchange rates don’t require an international manager such as the International Monetary Fund to look over current account imbalances.
What is a floating exchange rate system?
A floating exchange rate is a regime where the currency price of a nation is set by the forex market based on supply and demand relative to other currencies . This is in contrast to a fixed exchange rate, in which the government entirely or predominantly determines the rate.
What is the difference between customs duty and tariff?
Importers need to understand what they mean and what the key differences are. Duties and tariffs are different types of taxes imposed on foreign goods . ... Tariffs are a direct tax applied to goods imported from a different country. Duties are indirect taxes that are imposed on the consumer of imported goods.
Who benefits from a tariff?
Tariffs mainly benefit the importing countries , as they are the ones setting the policy and receiving the money. The primary benefit is that tariffs produce revenue on goods and services brought into the country. Tariffs can also serve as an opening point for negotiations between two countries.
What is an expenditure switching policy measure?
Measures undertaken by a government to reduce a deficit in the country’s current account balance .
