| Consider the following actions which the Government can take: |
| 1. Devaluing the domestic currency |
| 2. Reduction in export subsidy |
| 3. Levying some kind of tax on remittances from abroad. Which of the above action (s) can help in reducing the current account deficit? |
A) 1 and 2 only
B) 2 and 3 only
C) 1 only
D) 3 only
Correct Answer: C
Solution :
[c] A country can reduce its current account deficit by increasing the value of its exports relative to the value of imports. It can place restrictions on imports, such as tariffs or quotas, or it can emphasize policies that promote exports, such as import substitution industrialization or policies that improve domestic companies' global competitiveness. The country can also use monetary policy to improve the domestic currency's valuation relative to other currencies through devaluation, since this makes a country's exports less expensive.
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