When a Country Runs a Balance of Payments Deficit Under

question 4

Multiple Choice

When a country runs a balance of payments deficit under a system of fixed exchange rates, which of the following is NOT part of the automatic adjustment process?

• A)a decrease in money supply leads to a lower level of spending
• B)a decrease in aggregate demand lowers domestic prices
• C)a decrease in domestic prices relative to foreign prices reduces the level of imports
• D)an increase in tariffs reduces the level of imports
• E)an increase in unemployment leads to lower wages

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Definitions:

Linear Demand Curve

A graphical representation of demand where the relationship between price and quantity demanded is a straight line, indicating constant marginal change.

Straight-Line

This term often refers to a method of depreciation in accounting where an asset loses value in equal increments over its useful life.

Downward-Sloping Demand Curve

A graphical representation showing the inverse relationship between the price of an item and the quantity demanded.

Price-Elasticity Coefficient

A measure indicating the responsiveness of the quantity demanded or supplied of a good to a change in its price.