Evaluate macroeconomic policies that could be used to reduce a current account deficit

In 2021 Brazil’s current account deficit on the balance of payments was US$46.12 billion. The Central Bank of Brazil intervened to sell its own currency, the real, on September 23rd 2022. This was the first time it has intervened in foreign currency markets since December 2021. Evaluate macroeconomic policies that could be used to reduce a current account deficit. Refer to a country of your choice in your answer. (June

Plan

• Paragraph 1
  • Argument: one policy to reduce a current account deficit is to increase tariffs
  • Diagram: tariff diagram 
  • Evaluation: retaliation
• Paragraph 2
  • Argument: another policy to reduce a current account deficit is lower interest rates 
  • Diagram: exchange rates diagram
  • Evaluation: this can cause inflation, which can worsen the current account deficit
• Other options:
  • currency devaluation (relate to a country that has a fixed exchange rate)
  • supply-side policies
  • contractionary demand-side policies
• Conclusion: consider the difference between a cyclical and structural deficit and the possible need for supply-side policies

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