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) An increase in the money supply
B) A decrease in the money supply
C) An increase in money demand
D) None of the above

Question

Quizplus · Accepted Answer

An increase in the money supply, with money demand unchanged, would lead to excess money supply, causing interest rates to fall. This would lead to capital outflows, worsening the balance of payments and moving it into a deficit.

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