A government wishes to reduce a persistent deficit on the current account of the balance of payments. It decides to use a combination of an expenditure-switching policy and an expenditure-reducing policy.
Which of the following policy combinations is most likely to achieve this objective?
Appreciation of the exchange rate, and a decrease in government expenditure
Depreciation of the exchange rate, and an increase in government expenditure
Depreciation of the exchange rate, and a decrease in government expenditure
Appreciation of the exchange rate, and an increase in government expenditure
