Author Question: Monetary expansion causes the current account balance to increase in the short run. Discuss. Is the ... (Read 80 times)

sc00by25

  • Hero Member
  • *****
  • Posts: 596
Monetary expansion causes the current account balance to increase in the short run. Discuss. Is the same the case for fiscal expansion?
 
  What will be an ideal response?

Question 2

What is the best explanation for why China and India have received so much international interest and foreign investment?
 
  A) Their large populations
  B) Their geographic location
  C) Their control over natural resources
  D) Government incentives provided to foreign firms



Jordin Calloway

  • Sr. Member
  • ****
  • Posts: 334
Answer to Question 1

Am increase in the money supply leads to an increase in Y and E (output increases and the currency depreciates, respectively). Because of the currency depreciation, domestic goods are now cheaper compared to foreign goods. Exports increase and imports decrease, therefore the CAB increases.
An expansion of fiscal policy actually reduces the CAB: the DD curve is shifted right. Therefore Y rises, but E falls (output rises but the currency appreciates.) Domestic goods are more expensive, and the CAB falls.

Answer to Question 2

A



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

In ancient Rome, many of the richer people in the population had lead-induced gout. The reason for this is unclear. Lead poisoning has also been linked to madness.

Did you know?

In 1844, Charles Goodyear obtained the first patent for a rubber condom.

Did you know?

The use of salicylates dates back 2,500 years to Hippocrates's recommendation of willow bark (from which a salicylate is derived) as an aid to the pains of childbirth. However, overdosage of salicylates can harm body fluids, electrolytes, the CNS, the GI tract, the ears, the lungs, the blood, the liver, and the kidneys and cause coma or death.

Did you know?

An identified risk factor for osteoporosis is the intake of excessive amounts of vitamin A. Dietary intake of approximately double the recommended daily amount of vitamin A, by women, has been shown to reduce bone mineral density and increase the chances for hip fractures compared with women who consumed the recommended daily amount (or less) of vitamin A.

Did you know?

Your chance of developing a kidney stone is 1 in 10. In recent years, approximately 3.7 million people in the United States were diagnosed with a kidney disease.

For a complete list of videos, visit our video library