Under a fixed exchange rate system, a country experiencing a persistent current account deficit wishes to reduce its volume of consumer imports to help restore balance of payments equilibrium without devaluing its currency. Which of the following policy actions is most likely to achieve this objective?
A reduction in the central bank's base interest rate.
An increase in the standard rate of income tax.
A decrease in the cash reserve ratio for commercial banks.
An expansion of the government's budget deficit through increased capital spending.
310 exam-style questions on AQA A Level Economics 2.6 The international economy (A-level only), covering 2.6.1 Globalisation, 2.6.2 Trade, 2.6.3 The balance of payments, 2.6.4 Exchange rate systems, and 2.6.5 Economic growth and development. Each one has a worked solution and a mark scheme showing where the marks go.