If there is a shift of international trade away from a country's products, we can expect that the FE and IS curves will shift to the _____, the overall payments balance will move toward _____, and the domestic currency will _____.
A)right; surplus; appreciate
B)right; deficit; appreciate
C)left; surplus; depreciate
D)left; deficit; depreciate

Question

Quizplus · Accepted Answer

A shift away from a country's products in international trade would likely decrease exports, leading to a decrease in aggregate demand. This would shift the IS curve to the left. The decrease in exports would also worsen the overall payments balance, moving it toward a deficit. With a worsening payments balance, the domestic currency would tend to depreciate.

If There Is a Shift of International Trade Away from a Country's