Currency Devaluation Boosts Exports and Curbs Imports

Steps:

• Identify adverse current account as a deficit where imports exceed exports.
• Seek policy that makes exports cheaper and imports costlier abroad.
• Evaluate options for direct impact on trade competitiveness.
• Select devaluation as it alters relative prices via exchange rates.

Why B is correct:

• Devaluation lowers domestic currency value, making exports cheaper for foreigners (boosting quantity demanded) and imports pricier (reducing quantity), improving the current account per the Marshall-Lerner condition if demand elasticities sum over 1.

Why the others are wrong:

• A: Abolishing tariffs removes import barriers, increasing imports and worsening the deficit.
• C: Reducing direct taxes raises disposable income, stimulating consumption and likely more imports.
• D: Reducing indirect taxes lowers prices, encouraging overall spending including on imports.

Final answer: B