In Most Cases,expenditure-Switching Policies Must Be Accompanied by Expenditure-Reducing Policies

question 8

Multiple Choice

In most cases,expenditure-switching policies must be accompanied by expenditure-reducing policies because

• A)expenditure-switching policies are completely ineffective without expenditure-reducing policies.
• B)inflation ensues as home country domestic expenditures switch away from foreign goods to domestic goods unless overall expenditures are reduced.
• C)inflation abroad may increase the demand for domestic goods,causing inflation to rise.
• D)the depreciation in the exchange rate may decrease the domestic price of foreign goods,causing an increase in the current account deficit.
• E)None of the above.

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