Which of the following would do the most to reduce a trade deficit?
A)increase domestic saving
B)increase domestic political stability and respect of property rights
C)other countries reduce their trade restrictions
D)raise tariffs

Question

Quizplus · Accepted Answer

Increasing domestic saving would lead to an increase in the supply of loanable funds, which would lead to a decrease in interest rates. This would, in turn, lead to a decrease in consumption and an increase in investment. With decreased consumption, there would be less demand for imports, which would reduce the trade deficit.

Note: While option C might also help in reducing the trade deficit, it is not within the control of the country experiencing the trade deficit to influence other countries' trade restrictions. Moreover, option D (raising tariffs) is not an ideal solution as it can lead to retaliation from other countries and start a trade war, ultimately making both countries worse off.

Which of the Following Would Do the Most to Reduce