The effect of currency depreciation on the purchasing power of money balances and the resulting impact on domestic expenditures is emphasized by the
A) absorption approach.
B) monetary approach.
C) fiscal approach.
D) elasticity approach.

Question

Quizplus · Accepted Answer

The emphasis on the impact of currency depreciation on purchasing power and domestic expenditures suggests that the best approach for analyzing this situation is the monetary approach, which focuses on the relationship between changes in the money supply, exchange rates, and prices. The absorption approach is more focused on the relationship between national income and domestic absorption, while the fiscal approach looks at government policies and taxation. The elasticity approach is a more general concept that applies to the responsiveness of one variable to changes in another.

The Effect of Currency Depreciation on the Purchasing Power of Money