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14b Current Account (Policies (Expenditure Switching (Advantages…

- - - - Depreciation
        
        Cheaper exports
        
        More ex imports
        
        Net exports increase,
        assuming M-L condition holds
      - Trade Protection
    - - Depreciation
        
        Increase in net exports
        
        Increase in AD
        
        Demand-pull inflation
        
        Reduces price competitiveness of exports
        
        Higher COP due to
        more ex imports
        
        Decrease in SRAS
        
        Cost-push inflation
      - Trade Protection
        
        Increased domestic prices
        
        Decreased consumption
        
        Invites retaliation
        
        Production shifts from efficient firms to inefficient firms
        
        Global misallocation of resources
  - - - Reduce demand
        -pull inflation
        
        Increase price
        competitiveness
        of exports
        
        Higher exports
        
        Reduce CAD
      - Reduce AD
        
        Lower incomes and output
        
        Lower imports
    - - MP:
        Increase in interest rates
        
        Attract increased foreign investments leading to appreciation
        
        More ex exports
        
        Cheaper imports
        
        Decrease in net exports
        
        Can cancel out effect of
        monetary policies on CAD
      - Hard to estimate level of
        deflation to achieve
        
        May cause recession
- - - - Higher export prices
        
        Lower import prices
        
        If M-L holds
        Net exports decrease
        
        Can cause surplus to fall
    - - Funds leave the
        financial account
        
        Reduced
        domestic
        investment
        
        Reduced economic growth
    - - Accumulation of
        foreign assets
  - - - Increased cost-push
        inflationary pressures
      - Reduces the deficit
        assuming M-L
        condition holds
    - - Countries increase borrowing to fund import expenditures
        
        High indebtedness
        
        Poor international
        credit ratings
      - Lower capacity to
        import capital goods
        
        Lower output
        
        Slower economic
        growth