The direction of change in the trade balance is uncertain because expansionary monetary policy may exert forces in the opposite direction. What are they?
A) An increase in income tends to lower the trade balance, whereas a fall in interest rates through depreciation tends to raise the trade balance.
B) An increase in the supply of money raises interest rates, which lowers the trade balance, whereas the increase in the demand for money raises it.
C) Exchange rates rise (depreciation) and expected exchange rates fall (appreciation).
D) An increase in financial assets raises foreign inflows and raises the trade balance, whereas decreases in interest rates lower the trade balance.
Ans: A) An increase in income tends to lower the trade balance, whereas a fall in interest rates through depreciation tends to raise the trade balance.
You might also like to view...
The table above shows the situation in the gasoline market in Tulsa, Oklahoma. If the price of a gallon of gasoline is $3.73, then
A) there is a surplus of gasoline in Tulsa. B) there is a shortage of gasoline in Tulsa. C) the gasoline market in Tulsa is in equilibrium. D) without more information we cannot determine if there is a surplus, a shortage, or an equilibrium in the gasoline market in Tulsa. E) there is neither a surplus nor a shortage, but the market is NOT in equilibrium.
One should ignore the degree of income inequality _____
a. when one considers the design of redistribution programs b. when one only cares about improving the lot of the worst off in society c. when considering whether or not to transfer resources from the rich to the poor d. when considering progressive taxation