Tariffs curb imports to improve current account balance

Steps:

• Identify current account deficit as excess of imports over exports plus net income/transfers.
• Evaluate policies' impact on trade balance, the main deficit driver.
• Focus on measures reducing imports or boosting exports.
• Select option directly targeting imports via protectionism.

Why D is correct:

• Import tariffs raise foreign goods' prices, reducing import volume per the law of demand, shrinking the trade deficit component of current account.

Why the others are wrong:

• A: Lower income taxes increase disposable income, raising domestic demand and imports, worsening deficit.
• B: Higher exchange rate (currency appreciation) makes exports costlier abroad and imports cheaper, increasing deficit.
• C: More government spending boosts aggregate demand, likely increasing imports without export gains, expanding deficit.

Final answer: D