Exam 13: Mechanisms of International Adjustment

Figure 13.1.U.S.Capital and Financial Account -Refer to Figure 13.1.Upward movements along U.S.capital and financial account schedule CA₀ would be caused by:

According to the equation of exchange,the total expenditures on final goods equals the monetary value of the final goods sold.

Figure 13.4.Canadian Economy Under a Fixed Exchange Rate System -Referring to Figure 13.4,Canada's foreign-trade multiplier equals 2.0.

Starting from a position where the nation's money demand equals the money supply and its balance of payments is in equilibrium,economic theory suggests that the nation's balance of payments would move into a surplus position if there occurred in the nation:

The monetary approach to balance-of-payments adjustments suggests that all payments deficits are the result of:

In explaining balance-of-payments adjustments,the classical economists

Figure 13.2.Australian Economy Under a Fixed Exchange Rate System -Refer to Figure 13.2.Starting at equilibrium income $50 billion,where (S-I)₀ intersects (X-M)₀,suppose that increased thriftiness leads to an autonomous increase in Australian saving of $5 billion.Australian income thus ____ which leads to Australia's trade account moving to a ____.

For the income adjustment mechanism to reverse a trade deficit,economic policymakers must be willing to permit domestic income to increase which leads to rising imports.

Refer to Exhibit 13.1.The change in the level of U.S.income resulting from the additional investment spending equals

David Hume's price-adjustment mechanism supported the mercantilist view that a nation could maintain a trade surplus indefinitely.

Figure 13.2.Australian Economy Under a Fixed Exchange Rate System -Refer to Figure 13.2.Starting at equilibrium income $50 billion,where (S-I)₀ intersects (X-M)₀,suppose that improving profit expectations lead to an autonomous increase in Australian investment of $5 billion.Australian income thus ____ which leads to Australia's trade account moving to a ____.

An "automatic" adjustment mechanism would require a trade-surplus nation to accept price deflation and/or falling income as the cost of increasing imports.

According to the quantity theory of money,a change in the money supply will induce an inverse and less-than-proportionate change in the price level.

The balance-of-payments adjustment mechanism developed during the 1700s by the English economist David Hume is the:

Suppose Japan increases its imports from Sweden,leading to a rise in Sweden's exports and income level.With a higher income level,Sweden imports more goods from Japan.Thus a change in imports in Japan results in a feedback effect on its exports.This process is best referred to as the:

Starting from a position where the nation's money demand equals the money supply and its balance of payments is in equilibrium,economic theory suggests that the nation's balance of payments would move into a deficit position if there occurred in the nation:

Compared to classical economists,how did Keynesian economics change the discussion of trade adjustment?

Figure 13.2.Australian Economy Under a Fixed Exchange Rate System -Refer to Figure 13.2.Starting at equilibrium income $50 billion,where (S-I)₀ intersects (X-M)₀,suppose that dwindling thriftiness leads to an autonomous decrease in Australian saving to $5 billion.Australian income thus ____ which leads to Australia's trade account moving to a ____.

Assume identical interest rates on comparable securities in the United States and foreign countries.Suppose investors anticipate that in the future the U.S.dollar will depreciate against foreign currencies.Investment funds would tend to:

Figure 13.2.Australian Economy Under a Fixed Exchange Rate System -Refer to Figure 13.2.Starting at equilibrium income $50 billion,where (S-I)₀ intersects (X-M)₀,suppose that improving economic conditions abroad lead to an autonomous increase in Australian exports of $5 billion.Australian income thus ____ which leads to Australia's trade account moving to a ____.