... are usually reelected by. However often when faced with large and persistent external imbalances, Governments shift their focus. To achieve these objectives Governments have a number of policy options at their disposal. Including expenditure-changing policies, expenditure-switching policies, and direct controls, consisting of tariffs, quotas, and other international trade restrictions. However for the purpose of this piece I will concentrate two of the policy options, both expenditure-changing policies and expenditure-switching policies. Expenditure changing policies include both fiscal and monetary policy. Fiscal policy involves the use of taxation and Government spending. Expansionary fiscal policy is when Government spending is increased and/or taxation reduced. "This leads to an expansion of domestic production and income through a multiplier process" (Salvatore), Just as in the case of an increase in domestic investment or exports and induce a rise in imports, depending on the marginal propensity to import of the nation. Contractionary fiscal policy means higher taxation and lower ...

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