Suppose the United States is entering a recession at the same time that it has agreed to work toward eliminating its trade deficit. Considering the effect of monetary policy on trade through its impact on income only:
A)an expansionary monetary policy would be the appropriate means of achieving both objectives.
B)a contractionary monetary policy would be the appropriate means of achieving both objectives.
C)an expansionary monetary policy would be appropriate to eliminate the trade deficit, but contractionary monetary policy is called for to deal with the recession.
D)a contractionary monetary policy would be appropriate to eliminate the trade deficit, but expansionary monetary policy is called for to deal with the recession.

Question

Quizplus · Accepted Answer

An expansionary monetary policy can help combat a recession by increasing income and spending, but it may worsen a trade deficit by increasing imports. Conversely, a contractionary policy can help reduce a trade deficit by decreasing income and imports, but it may exacerbate a recession.

Suppose the United States Is Entering a Recession at the Same