Which of the following balance-of-payments adjustment mechanisms is most closely related to the quantity theory of money?
A) Income-adjustment mechanism
B) Price-adjustment mechanism
C) Interest-rate-adjustment mechanism
D) Output-adjustment mechanism

Question

Quizplus · Accepted Answer

The price-adjustment mechanism is most closely related to the quantity theory of money, which states that changes in the money supply will have proportional effects on prices. As a result, countries with an excess supply of money will experience price inflation, which will lead to a decrease in their exports and an increase in imports, causing a balance-of-payments adjustment through changes in relative prices.

Which of the Following Balance-Of-Payments Adjustment Mechanisms Is Most Closely