Author Question: What is the difference between an expenditure-changing policy and an expenditure-switching policy? ... (Read 126 times)

Sportsfan2111 · **on:** Jun 30, 2018

What is the difference between an expenditure-changing policy and an expenditure-switching policy?

What will be an ideal response?

Question 2

Compare currency board to conventional fixed exchange rate.

What will be an ideal response?

Ptupou85 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

An expenditure-changing policy alters the level of the economy's total demand for goods and services. An expenditure-switching policy, on the other hand, induces an exchange rate adjustment and thus changes the direction of demand, shifting it between domestic output and imports.

Answer to Question 2

Currency board may not acquire domestic assets and thus cannot lend currency freely to domestic banks in time of financial crisis. Also, limit government ability to surprise the market and have real devaluation.