Restricting imports to reduce current account deficit

Steps:

• Current account deficit means imports exceed exports, draining foreign reserves.
• Policies that curb imports directly reduce the deficit by lowering import spending.
• Import quotas limit quantity of goods entering, effectively decreasing imports.
• Evaluate options: quotas restrict volume, tariffs affect price, taxes boost demand, subsidies aid exports.

Why A is correct:

• Lowering import quotas reduces the physical volume of imports allowed, directly decreasing the import component of the current account per balance of payments definition.

Why the others are wrong:

• B: Lowering import tariffs makes imports cheaper, increasing import volume and worsening the deficit.
• C: Lowering income tax raises disposable income, boosting domestic demand for imports and aggravating the deficit.
• D: Lowering export subsidies reduces incentives for exports, decreasing export earnings and deepening the deficit.

Final answer: A