Boosting investment for long-term export growth

Steps:

• Recognize BOP deficit as excess imports over exports or capital outflows needing structural fixes.
• Prioritize long-run policies that enhance productivity and competitiveness over short-term demand stimulus.
• Analyze options: Check impact on trade balance via supply-side or demand-side effects.
• Choose policy fostering sustainable investment to increase exports and reduce import reliance.

Why D is correct:

• Grants encourage firm investment, raising productive capacity and export competitiveness, aligning with supply-side economics principles for long-term BOP improvement.

Why the others are wrong:

• A: Lowers import duties, boosting imports and deepening the deficit.
• B: Reduces income tax, increasing disposable income and import-driven consumption.
• C: Expansionary monetary policy stimulates demand and risks inflation, worsening BOP via currency depreciation.

Final answer: D