A country is using a beggar-thy-neighbor policy whenever:
A) it uses contractionary monetary policy to attract capital inflows from other countries.
B) it devalues its currency to improve its macroeconomic position at the expense of its trading partners.
C) it revalues its currency to improve its macroeconomic position and that of its trading partners.
D) it cooperates with other countries in establishing its monetary policy.

Question

Quizplus · Accepted Answer

A beggar-thy-neighbor policy refers to a trade policy that benefits one country at the expense of its trading partners. Devaluing one's currency makes exports cheaper and more attractive to foreign buyers, and imports become more expensive for domestic buyers. This improves the country's macroeconomic position, but hurts its trading partners as their exports become more expensive and thus less competitive. Contractionary monetary policy, on the other hand, may attract capital inflows but does not necessarily harm trading partners in the same way as currency devaluation. Therefore, B is the best choice.

A Country Is Using a Beggar-Thy-Neighbor Policy Whenever