Which of the following statements is not true with regard to the price-specie-flow mechanism:
A)relies on the quantity theory of money
B)requires that nations allow their money supply to rise when the nation has a surplus in its balance of payments and to fall when the nation has a deficit
C)requires that the price elasticity of demand for imports and exports be equal to zero
D)it was introduced by David Hume to show the futility of the mercantilists' prescription

Question

Quizplus · Accepted Answer

The price-specie-flow mechanism does not require the price elasticity of demand for imports and exports to be equal to zero. Rather, it relies on the adjustment of prices in response to changes in the balance of payments, which can lead to changes in the demand for imports and exports. The mechanism was introduced by David Hume to show that the mercantilist belief in accumulating precious metals through exports and restricting imports was ultimately futile. It relies on the quantity theory of money, and requires that nations adjust their money supply in response to changes in the balance of payments in order to maintain price levels.

Which of the Following Statements Is Not True with Regard