Expenditure-reducing policies cut domestic spending to boost net exports

Steps:

• Identify expenditure-reducing policies as measures that decrease aggregate demand, like fiscal contraction, to reduce imports and improve the current account.
• Evaluate options: A lowers rates, boosting spending; B makes exports costlier; C raises taxes, curbing consumption; D restricts outflows without reducing spending.
• Match C to reducing disposable income, thus domestic absorption.
• Confirm others as switching (B), monetary easing (A), or controls (D), not expenditure reduction.

Why C is correct:

• Increasing direct taxes reduces households' disposable income, lowering consumption and imports per the absorption approach (Y = A + NX, where reducing A improves NX).

Why the others are wrong:

• A: Reduction in interest rates is expansionary, increasing investment and imports.
• B: Currency revaluation is an expenditure-switching policy, making exports less competitive.
• D: Foreign exchange controls limit transactions but do not reduce overall domestic spending.

Final answer: C