Question

In early 1973, the U.S. economy was suffering from inflation, recession, and at the same time balance of payments deficit. Which of the policies was applied by the Nixon administration?

A expansionary fiscal and monetary policy to stimulate the economy

B wage-price controls to fight inflation

C 10% tariff on all imports to reduce balance of payments deficit

D all of the above

Monetary policy tends to be more effective in stimulating domestic production under floating exchange rate regime because:

A as money supply increases, interest rates drop causing capital outflow and depreciation of domestic currency. Depreciation in turn increases exports providing an additional kick to domestic production.

B as money supply increases, interest rates drop causing capital outflow and appreciation of domestic currency. Depreciation in turn increases exports providing an additional kick to domestic production.

C as money supply increases, interest rates drop causing capital outflow and depreciation of domestic currency. Depreciation in turn increases imports providing an additional kick to domestic production.

D as money supply increases, interest rates rise causing capital outflow and depreciation of domestic currency. Depreciation in turn increases exports providing an additional kick to domestic production.

Answer 1

1. Ans - d) all of the above

Explanation:

Nixon administration policies are:

- expansionary fiscal and monetary policy to stimulate the economy

- wage-price controls to fight inflation

- 10% tariff on all imports to reduce balance of payments deficit

2. Ans - A) as money supply increases, interest rates drop causing capital outflow and depreciation of domestic currency. Depreciation in turn increases exports providing an additional kick to domestic production.