Which of the following equations correctly represents the monetary approach to the balance of payments MABP?

Question

Quizplus · Accepted Answer

The monetary approach to the balance of payments (MABP) states that changes in the money supply in one country will affect exchange rates and trade balances. The MABP equation is:

(Ms/Ps) = (Md/Pd) + (Xs/M) - (Md/M)

where Ms is the money supply in the home country, Ps is the price level in the home country, Md is the demand for money in the home country, Pd is the price level in the foreign country, Xs is exports in the home country, M is imports in the home country, and Md/M is the foreign money supply.

Option A correctly represents this equation.

Which of the Following Equations Correctly Represents the Monetary Approach