Consider the following statements with respect to correcting the imbalance in the country's trade balance:
1. Expenditure Reduction Policy
2. Expenditure Switching Policy
3. Controlling Deflation

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1, 2 and 3
(d) 1 and 2 only

Question

Consider the following statements with respect to correcting the imbalance in the country's trade balance:
1. Expenditure Reduction Policy
2. Expenditure Switching Policy
3. Controlling Deflation

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1, 2 and 3
(d) 1 and 2 only

ONLiNE UPSC · Accepted Answer

Option 1 is correct : The expenditure reduction policy aims to dampen the level of aggregate demand in the domestic economy so that the demand for imported goods and services is reduced

Option 2 is correct : Expenditure-switching policies intend to switch domestic and foreign demand away from foreign goods and towards home-produced goods. The objective is to encourage overseas residents to buy more exports and to induce domestic residents to purchase home-produced goods and services instead of imports.

Option 3 is not correct : Deflation refers to a general decline in price levels and is typically addressed through expansionary monetary and fiscal policies aimed at increasing demand. While controlling deflation is crucial for economic stability, it does not directly serve as a tool for correcting trade imbalances.

Trade Balance

Correcting Imbalance

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M Question 1	⏱ 0
Consider the following statements with respect to correcting the imbalance in the country's trade balance: 1. Expenditure Reduction Policy 2. Expenditure Switching Policy 3. Controlling Deflation Which of the statements given above is/are correct? (a) 1 only (b) 2 and 3 only (c) 1, 2 and 3 (d) 1 and 2 only