Question

If the government of a small, open economy wishes to reduce a trade deficit, which policy action will be successful in achieving this goal? A) increasing taxes. B) increasing government spending. C) increasing investment tax credits. D) imposing protectionist trade policies.

Answer 1

Answer: The correct answer is "A) increasing taxes.".

Explanation: If the government of a small, open economy wishes to reduce a trade deficit, increasing taxes is the policy action that will be successful.

Since increasing taxes will be an increase in income for the government.