Policy shift from expenditure-reducing to switching for current account deficit

Steps:

• Expenditure-reducing policies cut total spending to curb imports, like raising income taxes.
• Expenditure-switching policies redirect spending to domestic goods, like imposing tariffs on imports.
• The change requires old policy as reducing (e.g., income tax) and new as switching (e.g., tariffs).
• Choice D fits: income tax (old, reducing) and tariffs (new, switching).

Why D is correct:

• Income tax is expenditure-reducing as it lowers disposable income and total absorption per the absorption approach (CA = Y - A), while tariffs are expenditure-switching by raising import prices to favor domestic production.

Why the others are wrong:

• A: Export subsidies and quotas both switch expenditure toward domestic/export goods.
• B: Income tax and interest rate control (e.g., higher rates) both reduce overall expenditure.
• C: Quotas and exchange rate control (e.g., devaluation) both switch spending to domestic alternatives.

Final answer: D