In most cases, expenditure-switching policies must be accompanied by expenditure-reducing policies because

Question

A) expenditure-switching policies are completely ineffective without expenditure-reducing policies.
B) inflation ensues as home country domestic expenditures switch away from foreign goods to domestic goods unless overall expenditures are reduced.
C) inflation abroad may increase the demand for domestic goods, causing inflation to rise.
D) the depreciation in the exchange rate may decrease the domestic price of foreign goods, causing an increase in the current account deficit.

Answer 1

B