Over the past eight years, Vesperia, a member of a major regional currency union, has seen its current account deficit widen to 7.2% of GDP. Because Vesperia does not control its own monetary policy or exchange rate, it cannot rely on currency depreciation to restore export competitiveness. Economists point to Vesperia's unit labour costs, which have grown by 18% over the decade while productivity has stagnated. Extract D (lines 14–16) states: "To restore balance of payments equilibrium without the tool of exchange rate adjustment, Vesperia must undertake painful structural adjustments or pursue aggressive internal devaluation to realign its price levels with international competitors."
Using the extract and your knowledge of economics, assess the policies that Vesperia could implement to reduce its persistent current account deficit.
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.