Tariffs as Expenditure-Switching Policy

Steps:

• Identify the policy action: US imposed tariffs on Chinese imports to protect domestic industries.
• Recall macroeconomic policy categories for trade imbalances: expenditure-reducing cuts total spending; expenditure-switching redirects spending from imports to domestic goods.
• Classify tariffs: They raise import prices, encouraging consumers to switch to US-produced alternatives.
• Confirm fit: This matches expenditure-switching, not broad demand or supply adjustments.

Why B is correct:

• Expenditure-switching policies, like tariffs, alter relative prices to shift demand from foreign to domestic goods, improving the trade balance per the Mundell-Fleming model.

Why the others are wrong:

• A: Expenditure-reducing policies lower aggregate demand via fiscal contraction or higher taxes, not by targeting imports.
• C: Monetary policy adjusts interest rates or money supply to influence borrowing and inflation, unrelated to trade barriers.
• D: Supply-side policies enhance production efficiency through incentives like tax cuts, not protectionist measures.

Final answer: B