In the context of David Hume's price-specie-flow mechanism that challenged the Feasibility of the Mercantilist ideas regarding a trade surplus, which one of the following Statements is NOT correct?
A) There is a decrease in the money supply in the deficit country.
B) There is an increase in the price level in the surplus country.
C) There is an increase in real income in the surplus country.
D) Price changes in the surplus country cause that country's exports to decrease.

Question

Quizplus · Accepted Answer

David Hume's price-specie-flow mechanism suggests that an increase in the money supply in the surplus country leads to higher prices, which eventually makes its goods more expensive and less competitive abroad, reducing exports. It does not directly increase real income in the surplus country; instead, it affects price levels and trade balances.

In the Context of David Hume's Price-Specie-Flow Mechanism That Challenged