Exam 16: Theories of the Current Account Balance

The international adjustment mechanism for flexible exchange rates is the same as for managed float regimes.

If the price of a good rises by 10% and the quantity purchased falls by 5%,then demand for the good is ________ and total spending on the good will ________.

Which of the following is not correct for a small open economy?

If U.S.export contracts are written in terms of foreign currency and import contracts are denominated in domestic currency,a devaluation of the dollar during the currency contract period

What is pricing to market? Where is it most prevalent?

If devaluation improves only the BOP,rather than the BOT,this implies that the capital account must have improved following a devaluation.

The ________ analyzes the BOP and exchange rates in terms of money supply and money demand.

Empirical evidence regarding the effects of devaluation on the balance of trade indicates that

The ________ analysis considers the ability of domestic and foreign prices to adjust to devaluation in the short run.

The reported reduction in the exchange-rate pass through to import prices means that U.S.inflation will be relatively insensitive to exchange rate changes.

If a country's currency appreciates,then its exports will cost ________ abroad and its imports will cost ________ domestically.

Suppose that the United Kingdom devalues the pound. If both exports and imports are written in terms of pounds,then the United Kingdom balance of trade ________ during a currency contract period.

The elasticities approach and the absorption approach are theories of the balance of trade that emphasize trade in real goods and have little to say about the capital account.

Explain the elasticities and absorption approaches to the BOT. What is the most notable shortcoming of these approaches?

Suppose that the Japanese yen appreciates significantly at some point,thus making Japanese imports more expensive.Japanese exporters may lower their profit margins to reduce the effect of the yen appreciation on U.S.importers,producing a phenomenon known as

With a flexible exchange rate,a nation can choose an inflation rate independent of the rest of the world.

Which of the following is not appropriate,if we live in a world of fixed exchange rates?

The absorption approach is a theory of the balance of payments that emphasizes how domestic spending on domestic goods changes relative to domestic output.

The balance of trade can only worsen if income ________ relative to absorption.

The ________ is a theory of the balance of trade that emphasizes how domestic spending on domestic goods changes relative to domestic output.