The ______ is a theory of exchange rate adjustment and the balance of payments that considers how domestic spending on domestic goods and the trade balance changes relative to domestic output.
A) monetary approach
B) elasticity approach
C) portfolio approach
D) absorption approach

Question

Quizplus · Accepted Answer

The absorption approach is a theory of exchange rate adjustment and the balance of payments that considers how domestic spending on domestic goods and the trade balance changes relative to domestic output. The monetary approach focuses on the role of money supply and demand in exchange rate determination, the elasticity approach emphasizes the responsiveness of trade flows and capital flows to changes in relative prices, and the portfolio approach examines the portfolio preferences of investors and the effect on exchange rates.

The ______ Is a Theory of Exchange Rate Adjustment and the Balance