What is meant by the terms expenditure changing policy and expenditure switching policy? Give some examples of each.

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What is meant by the terms expenditure changing policy and expenditure switching policy? Give some examples of each.

What is meant by the terms expenditure changing policy and expenditure switching policy? Give some examples of each.

 

Answer & Explanation (1)

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The international economic policy has several instruments which are pursued by countries time and again to attain particular goals.

Explanation

Expenditure changing and expenditure switching policies are the two key instruments used by any nation's government to achieve policy targets and maintain external and internal balance.
Expenditure changing policies:These involve changing the amount of expenditure incurred on goods and services,including domestically produced as well as imports.These policies are implemented using fiscal policy and monetary policy to alter the spending by government and consumers.For example, Government can control inflation by decreasing the demand using contractionary fiscal policy or by decreasing the money supply in the economy using contractionary monetary policy.
 
Expenditure switching policies: These involve diverting the expenditure to a different direction.There is a shift in the demand between domestic goods and imports depending upon the tool used.For example: devaluation can be used to shift the demand to domestic goods from imports.In another example, if government wants to divert the money from consumption to savings,it can do so by providing higher rate of interest or tax exemptions for savings beyond particular amount.

Verified Answer

Expenditure changing involves decreasing or increasing the amount of money spent by consumers and government.Expenditure switching involves nudging the amount spent from one sector to another.
 
Fiscal and monetary policies along with devaluation and revaluation are used to implement these.

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