Currency Depreciation Boosts Net Exports

Steps:

• Identify adverse current account as a deficit where imports exceed exports.
• Seek policies that enhance export competitiveness or reduce import demand.
• Evaluate options for direct impact on trade balance via price effects.
• Select depreciation, as it alters relative prices in international trade.

Why B is correct:

• Depreciation lowers the domestic currency's value, making exports cheaper for foreigners (boosting quantity demanded) and imports costlier (reducing quantity demanded), per the Marshall-Lerner condition where elasticity sum >1 improves trade balance.

Why the others are wrong:

• A: Abolishing tariffs removes import barriers, likely increasing imports and worsening the deficit.
• C: Reducing direct taxes raises disposable income, stimulating consumption that may increase import spending.
• D: Reducing indirect taxes lowers prices, potentially boosting overall demand including for imports.

Final answer: B