Question

Which of these measures will reduce deficit on the current account of the balance of payments through the use of fiscal policy?

• A. Increase in Direct Taxation
• B. Imposing import quota
• C. Raise interest rates
• D. Raise custom duty

Answer 1

The correct option is A Increase in Direct Taxation

Employing the tool of increased direct taxation, will lead to consumer disposable income falling. Thus , the consumers will reduce consumption overall. This will also include a reduction spending on imports and thus the amount of money flowing out of the country is likely to reduce, leading to a reducing current account deficit. The other mentioned tools would also serve to be useful, however, they are not a part of fiscal policy.