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

question 40

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.

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Definitions:

Lorenz Curve

A diagrammatic representation that exhibits how wealth or income is distributed among people in a society, underscoring the existing inequalities.

Gini Ratio

A scale measuring the degree of income difference among people in a demographic, with 0 symbolizing perfect equity and 1 symbolizing utter inequity.

Greater Inequality

A situation characterized by a wider disparity in income, wealth, opportunities, and other socioeconomic indicators among individuals or groups within a society.

Gini Ratios

Measures of income inequality within a population, ranging from 0 (perfect equality) to 1 (perfect inequality).