In some cases,a country's attempts to reduce its money supply growth and correct a persistent ______________ deficit could force the country into recession and create high unemployment.
A) balance-of-payments
B) fixed parity
C) floating exchange rate
D) fixed exchange rate
E) bank

Question

Quizplus · Accepted Answer

A persistent balance-of-payments deficit indicates that a country is importing more goods and services than it exports, which creates a net outflow of currency. To finance the deficit, a country may have to borrow funds from other countries or print more money. If the country tries to reduce its money supply growth in order to stabilize its currency, it may have to raise interest rates, which can lead to a decrease in consumer and business spending and hinder economic growth. This can result in a recession and high unemployment.

In Some Cases,a Country's Attempts to Reduce Its Money Supply