6.5 Policies to correct imbalances in the current account of the balance of payments

a) With the help of a diagram, explain what is meant by an appreciation of a floating exchange rate and consider whether a country can only benefit from the appreciation of its currency. [8]

a) Explain, with the use of a diagram(s), two factors that could bring about a depreciation in the value of a country's exchange rate in a freely floating exchange rate system. [8]

An economy adopts a freely floating exchange rate.

a) Explain how this economy's exchange rate is likely to be affected when its inflation rate is much higher than inflation rates in its trading partners. [8]

Some countries consistently have a deficit on the current account of the balance of payments.

b) Discuss whether expenditure-reducing or expenditure-switching policies are more likely to be of greater overall benefit if adopted to remove a persistent deficit on the current account of the balance of payments. [12]

Some countries consistently have a deficit on the current account of the balance of payments.

b) Discuss the extent to which expenditure-switching policies and expenditure-reducing policies might be able to reduce such a deficit. [12]

a) Explain, with the aid of a diagram, the impact of a subsidy to domestic producers of a product on the export revenue from that product. [8]

b) Discuss whether supply-side policies are an effective way of correcting a deficit on an economy's current account of the balance of payments. [12]