Exam 13: Balance-of-payments Adjustments

Figure 13.4. Canadian Economy Under a Fixed Exchange Rate System -Referring to Figure 13.4,Canada's marginal propensity to save equals 0.25 and marginal propensity to import equal 0.5.

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)? intersects (X-M)?,suppose that worsening economic conditions abroad lead to an autonomous decrease in Australian exports of $5 billion.Australian income thus ____ which leads to Australia's trade account moving to a ____.

Under the gold standard of the 1800s,exchange rates were allowed to float freely in the currency markets.

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

Prices,interest rates,and income are the automatic adjustment variables that help restore current-account equilibrium under a system of fixed exchange rates.

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? for all of the following reasons except:

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

If the marginal propensity to save equals 0.2 and the marginal propensity to import equals 0.3,the foreign-trade multiplier equal 2.0.

Under the gold standard,a deficit nation facing a gold outflow and a decrease in its money supply would also experience 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 changing preferences lead to an autonomous decrease in Australian imports of $5 billion.Australian income thus ____ which leads to Australia's trade account moving to a ____.

According to the Keynesian income-adjustment mechanism,income differentials among nations guarantee current-account equilibrium in a world of fixed exchange rates.

Reliance on an automatic adjustment process tends to be unacceptable in trade-deficit nations since it requires them to accept price deflation and/or falling income as a cost of reducing imports.

What is the foreign repercussion effect?

Keynesian theory asserts that,under a system of fixed exchange rates,the influence of income changes in surplus and deficit countries will automatically promote current-account equilibrium.

The classical economists assumed

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:

The price-adjustment mechanism's relevance to the real world has been questioned on the grounds that national output is generally not at the full-employment level and that the velocity of money is not always constant.

Suppose the United States levies an interest equalization tax,which taxes Americans on dividend and interest income from foreign securities.Such a tax would be intended to:

During the gold standard era,the "rules of the game" suggested that: