Exam 13: Balance-of-payments Adjustments

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

Table 13.1. Canada's Saving, Investment, Import, and Export Functions (in billions of dollars) Under a System of Fixed Exchange Rates -Refer to Table 13.1.If improved business optimism leads to increases in Canada's planned investment spending from $1000 billion to $1200 billion,Canada's equilibrium income rises by approximately:

Assume that Canada initially faces payments equilibrium in its merchandise trade account as well as in its capital and financial account.Now suppose that Canadian interest rates increase to levels higher than those abroad.For Canada,this tends to promote:

Assume that interest rates on comparable securities are identical in the United States and foreign countries.Now suppose that investors anticipate that in the future the U.S.dollar will appreciate against foreign currencies.Investment funds would thus be expected to:

Figure 13.1. U.S. Capital and Financial Account -Refer to Figure 13.1.U.S.capital and financial account schedule CA? would shift upwards,or downwards,for all of the following reasons except:

According to the quantity theory of money,a change in the domestic money supply will bring about:

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:

Is the monetary approach to the balance-of-payments part of the traditional adjustment theories?

The gold standard's "rules of the game" required central bankers in a surplus country to initiate contractionary monetary policies which lead to higher interest rates and net investment inflows.

Table 13.1. Canada's Saving, Investment, Import, and Export Functions (in billions of dollars) Under a System of Fixed Exchange Rates -Referring to Table 13.1,if Canada's income rises by $200 billion,imports would rise by:

Under the gold standard,a surplus nation facing a gold inflow and an increase in its money supply would also experience a:

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:

Table 13.1. Canada's Saving, Investment, Import, and Export Functions (in billions of dollars) Under a System of Fixed Exchange Rates -Referring to Table 13.1,Canada's foreign trade multiplier equals:

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

According to the monetary approach,balance-of-payments disequilibriums are the result of imbalances in a country's money supply and money demand.

Figure 13.3. U.S. Capital and Financial Account Under a Fixed Exchange Rate System -Refer to Figure 13.3.Falling investment profitability in the United States,relative to investment profitability abroad,would shift the U.S.capital and financial account schedule downward from CA? to CA?,resulting in net financial outflows from the United States.

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

Under the price-adjustment mechanism,a government's efforts to maintain a current-account surplus is self defeating over the long run because a nation's current account automatically moves toward equilibrium.

Assume that Canada initially faces payments equilibrium in its merchandise trade account as well as in its capital and financial account.Now suppose that Canadian interest rates fall to levels below those abroad.For Canada,this tends to promote:

That the balance of payments could be adjusted by prices and interest rates,under a fixed exchange rate system,originated with Keynesian theory during the 1930s.