Starting from a position where the nation's money demand equals the money supply,and its balance of payments is in equilibrium,economic theory suggests that the nation's balance of payments would move into a deficit position if there occurred in the nation a:
A) Decrease in the money supply
B) Increase in the money demand
C) Decrease in the money demand
D) None of the above

Question

Quizplus · Accepted Answer

A decrease in money demand, with a constant money supply, leads to excess money in the economy. This can result in increased spending on foreign goods and services, worsening the balance of payments.

Starting from a Position Where the Nation's Money Demand Equals