Exam 16: Theories of the Current Account Balance

The evidence available suggests that the effects of devaluation appear to differ across countries and time so that no strong generalizations regarding the effects of devaluation on the balance of trade and/or balance of payments are possible.

Is the "international adjustment mechanism" for fixed and flexible exchange rates the same? Discuss briefly.

The shorter the "pass-through" period,the ________ the desirable BOT effects of devaluation on quantities traded will appear.

The notion that,following a devaluation,the BOT falls for a while before increasing is called a ________ effect.

Which of the following are theories of the BOT?

In the case of purely flexible exchange rates,a decrease in domestic real income,with constant prices and domestic credit,will lead to

Both the ________ do not put a great deal of emphasis on the capital account.

With a managed float,monetary disequilibrium is eliminated through

J-curve effects following a devaluation are simply a theoretical issue with no real world importance.

With fixed exchange rates,the adjustment to changes in international monetary conditions comes through

If devaluation does not improve the BOT,but only the BOP,this implies that

The net effect of a devaluation on economic growth depends on the mix of capital and labor utilized in the nation's export industries.

Write down a model that will allow you to analyze the BOP and exchange rate in a monetary framework. Then,discuss the consequences of an increase in the foreign inflation rate under fixed,flexible,and managed floating systems.

There is evidence that the exchange-rate pass-through effect to import prices has been declining in developed economies,especially for the United States.

With fixed exchange rates,an increase in the foreign inflation rate,with constant income and domestic credit,will lead to

The longer the "pass-through" period following a devaluation,the faster the desirable balance of trade effects of a devaluation will appear on quantities traded.

What is the difference between the monetary approach to the exchange rate and monetary approach to the balance of payments? Briefly summarize the policy implications of the monetary approach.

According to the MABP,BOP disequilibria

The fact that the balance of trade normally falls before increasing after a devaluation is known as

Under a managed float system,central banks can