The TB (IE

question 31

Multiple Choice

The TB (i.e., X - M) is part of the short-run spending equation. With sticky prices, what would be the effect on the TB with an increase (a real depreciation) of the home nation's exchange rate?

• A) Consumers in the home nation would find it more expensive to buy domestic goods compared with foreign goods, and the TB would decrease.
• B) Consumers in the home nation would cut back on both domestic and foreign goods and the TB would decrease.
• C) Consumers in the home nation would increase spending on both domestic and foreign goods, and the TB would be unchanged.
• D) Consumers in the home nation would increase spending on domestic goods and decrease spending on foreign goods, causing the TB to increase.

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Definitions:

English Countryside

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A Spanish painter who was one of the leading artists in the court of King Philip IV and is known for his portraits and use of light.