Which of the following statements is not true with regard to the price-specie-flow mechanism:
A) relies on the quantity theory of money
B) requires that nations allow their money supply to rise when the nation has a surplus in its balance of payments and to fall when the nation has a deficit
C) requires that the price elasticity of demand for imports and exports be equal to zero
D) it was introduced by David Hume to show the futility of the mercantilists' prescription that a nation should attempt to continuously accumulate gold

Question

Quizplus · Accepted Answer

The price-specie-flow mechanism does not require that the price elasticity of demand for imports and exports be equal to zero. In fact, it assumes that demand elasticities are greater than zero, otherwise changes in prices would not affect the flow of gold. The mechanism relies on the quantity theory of money, requires that nations adjust their money supply in response to changes in their balance of payments, and was introduced by David Hume to refute mercantilists' beliefs about the accumulation of gold.

Which of the Following Statements Is Not True with Regard