Economics (AS & A Level) · May / June 2025 · Paper 34 · Question 26

A country has a deficit on the current account of the balance of payments. The government can try to reduce this deficit by using either an expenditure-switching policy or an expenditure-reducing policy. Under which conditions will an expenditure-reducing policy be more successful than an expenditure-switching policy?

1. Aprice elasticity of demand for imports 0.2; price elasticity of demand for exports 0.2; marginal propensity to import 0.1
2. Bprice elasticity of demand for imports 0.2; price elasticity of demand for exports 0.2; marginal propensity to import 0.4
3. Cprice elasticity of demand for imports 0.6; price elasticity of demand for exports 0.2; marginal propensity to import 0.1
4. Dprice elasticity of demand for imports 0.6; price elasticity of demand for exports 0.6; marginal propensity to import 0.4

As printed in the paper