Expenditure-switching policies alter spending between domestic and foreign goods

Steps:

• Identify expenditure-switching measures as those changing relative prices of imports/exports, like exchange rates or subsidies.
• Recall current account surplus means exports exceed imports; reducing it requires boosting imports or curbing exports.
• Evaluate options: switching policies target competitiveness, not total spending levels.
• Select the option that reduces export incentives to switch demand toward imports.

Why D is correct:

• Removing export subsidies raises export prices, reducing export competitiveness and thus the surplus, per the definition of expenditure-switching as altering trade incentives.

Why the others are wrong:

• A: Income tax cut boosts total income/spending (expenditure-increasing), raising imports but not switching via relative prices.
• B: Easing bank lending increases credit/aggregate demand (expenditure-increasing), not switching trade flows.
• C: Devaluation cheapens exports/raises import costs, increasing surplus, opposite of the goal.

Final answer: D