Exam 13: Balance-of-payments Adjustments

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

Figure 13.2. Australian Economy Under a Fixed Exchange Rate System -Refer to Figure 13.2.The slope of the (X-M)schedule and (S-I)schedule indicates that Australia's foreign trade multiplier is:

The essence of the classical price-adjustment mechanism is embodied in the quantity theory of money.

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)? intersects (X-M)?,suppose that worsening profit expectations lead to an autonomous decrease in Australian investment of $5 billion.Australian income thus ____ which leads to Australia's trade account moving to 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 deficit position if there occurred in the nation a:

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)? intersects (X-M)?,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 ____.

The classical gold standard

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

During the gold standard era,central bankers agreed to react positively to international gold flows so as to reinforce the automatic adjustment mechanism.Which of the following best represents the above statement?

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)? intersects (X-M)?,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 ____.

When a country's current account moves into disequilibrium,automatic adjustments in tariffs and quotas occur which move the current account back into equilibrium.

Suppose that rising U.S.income leads to higher sales and profits in the United States.This would likely result in:

Under a fixed exchange rate system,adjustment mechanisms work for the automatic return to current-account balance after the initial balance has been disrupted.

Which chain of events would promote payments equilibrium for a deficit nation,according to the price-adjustment mechanism?

Refer to Exhibit 13.1.The value of the multiplier for the United States equals:

According to the price-adjustment mechanism,trade deficits can occur only in the long run rather than in the short run.

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 weak economic conditions abroad result in Canada's exports falling from $3000 billion to $2500 billion,Canada's equilibrium income falls by approximately:

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

Under the price-adjustment mechanism,trade-deficit nations realize price inflation and a loss of competitiveness while trade surplus nations realize price deflation and an improvement in competitiveness.

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: