Discuss how nations use expenditure-changing policies and expenditure-switching policies to achieve overall balance. Support your answer by UAE as example.
Q2.
Since the 1930s, nations have actively pursued internal balance as a primary economic objective.
Nations also consider external balance as an economic objective. A nation realizes overall balance
when it attains internal balance and external balance.
To achieve overall balance, nations implement expenditure-changing policies (monetary and fiscal
policies), expenditure-switching policies (exchange-rate adjustments), and direct controls (price and
wage controls).
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Although exchange-rate adjustments primarily influence a nation’s balance-of-payments position
(current account), they have secondary impacts on the domestic economy. A nation with a balance-
of-payments deficit and high
nation with a balance-of-payments surplus and inflation could devalue its currency. Such policies
are dependent upon the willingness of other nations to refrain from implementing offsetting
exchange-rate adjustments.
For an open economy with a fixed exchange rate system and high capital mobility, fiscal policy is
more successful, and
closed economy. If the economy has a floating exchange-rate system, monetary policy is more
successful, and fiscal policy is less successful, in promoting internal balance than it is for a closed
economy. Discuss how nations use expenditure-changing policies and expenditure-switching
policies to achieve overall balance. Support your answer by UAE as example.
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