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Author Question: Describe the policies a nation would follow to correct a current account deficit. What are the ... (Read 55 times)

Brittanyd9008

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on: Jun 30, 2018
Describe the policies a nation would follow to correct a current account deficit. What are the primary purposes of each type of policy?
 
  What will be an ideal response?

Question 2

Using the HO model, assume that the United States is capital abundant and Mexico is labor abundant. If soybeans are capital intensive and avocados are labor intensive,
 
  A) Mexico will produce more soybeans once trade is introduced.
  B) the United States will produce more avocados once trade is introduced.
  C) avocado prices in the United States will fall once trade begins.
  D) soybean prices in Mexico will rise once trade begins.


Joc

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Reply #1 on: Jun 30, 2018
Answer to Question 1

Policy makers need to turn domestic expenditures away from foreign-produced products toward domestic products (expenditure switching) and reduce the overall level of demand in the economy (expenditure reducing). Expenditure reducing policies are intended to avoid inflation. Expenditure switching policies are intended to avoid recession.

Answer to Question 2

C


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