Expenditure switching refers to
A)a switching back and forth between investment and consumption expenditures.
B)a switching back and forth between domestic and foreign goods in response to changes in the exchange rate.
C)a switching back and forth between domestic and foreign goods in response to changes in the interest rate.
D)a switching of back and forth in the current account from a deficit to a surplus and vice versa.
E)All of the above.

Question

Quizplus · Accepted Answer

Expenditure switching refers to the switching back and forth between domestic and foreign goods in response to changes in the exchange rate. As the exchange rate changes, the relative price of domestic and foreign goods changes, which can lead consumers and firms to switch their expenditures between the two. This can have important implications for the balance of trade and the overall economy. None of the other options accurately describe expenditure switching.

Expenditure Switching Refers to