Exam 13: Balance-of-payments Adjustments

Figure 13.4. Canadian Economy Under a Fixed Exchange Rate System -Refer to Figure 13.4.Starting at equilibrium income $100 billion,where (S - I)? intersects (X - M)?,an autonomous decrease in Canadian exports of $10 billion leads to a $20 decrease in income and a trade deficit of $5 billion.

Figure 13.4. Canadian Economy Under a Fixed Exchange Rate System -Refer to Figure 13.4.Starting at equilibrium income $100 billion,where (S - I)? intersects (X - M)?,an autonomous increase in Canadian investment of $10 billion leads to a $20 billion increase in income and no change in the country's trade account.

Which of the following balance-of-payments adjustment mechanisms is most closely related to the quantity theory of money?

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

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.

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

J.M.Keynes suggested that a trade deficit nation

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

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:

The value of the foreign trade multiplier equals the reciprocal of the sum of the marginal propensities to:

Which of the following does not represent an automatic adjustment in balance-of-payments disequilibrium? Variations in:

Figure 13.4. Canadian Economy Under a Fixed Exchange Rate System -Refer to Figure 13.4.Starting at equilibrium income $100 billion,where (S - I)? intersects (X - M)?,an autonomous decrease in Canadian imports of $10 billion leads to a $20 billion decrease in income and a trade deficit of $5 billion.

The foreign-trade multiplier equals the sum of the marginal propensity to import and the marginal propensity to save.

Regarding the equation of exchange,the classical economists assumed that final output was below its maximum level while the velocity of money was volatile.

Figure 13.1. U.S. Capital and Financial Account -Refer to Figure 13.1.The U.S.capital and financial account schedule would shift upward from CA? to CA? if:

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:

Which approach to balance-of-payments adjustment suggests that balance-of-payments surpluses are the result of excess money demand in the home country?

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.

Under the classical gold standard,a trade surplus nation would realize gold inflows,an increase in its money supply,rising interest rates,and net investment inflows.

The monetary approach contends that,under a fixed exchange rate system,policies that increase the supply of money relative to the demand for money lead to a trade surplus.