A nation is experiencing a persistent current account deficit on its balance of payments. Assuming the Marshall-Lerner condition holds, which one of the following combinations of policy changes and economic conditions is most likely to reduce this current account deficit?
Expansionary monetary policy and a high rate of domestic inflation relative to trading partners
An increase in the domestic marginal propensity to import and a depreciating exchange rate
Implementation of contractionary fiscal policy and a depreciating exchange rate
A decrease in domestic labour productivity and an appreciating exchange rate
