Exam 13: Balance-of-payments Adjustments

The Keynesian income-adjustment mechanism contends that a trade-surplus nation tends to realize falling income and falling imports,thus accentuating the trade surplus.

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 increase in Australian imports of $5 billion.Australian income thus ____ which leads to Australia's trade account moving to a ____.

The gold standard's "rules of the game" required central bankers in a trade deficit nation to expand the money supply,leading to falling interest rates and net investment outflows.

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,saving would rise by:

The formulation of the so-called income adjustment mechanism is associated with:

Under the gold standard,each participating nation defined the mint price of gold in terms of its national currency was prepared to buy and sell gold at that price.

Figure 13.3. U.S. Capital and Financial Account Under a Fixed Exchange Rate System -Refer to Figure 13.3.If the political and economic stability of foreign countries worsens relative to that of the United States,the U.S.capital and financial account schedule would shift downward from CA? to CA?,resulting in net financial outflows from the United States.