When a Country Runs a Balance of Payments Deficit Under

Multiple Choice

When a country runs a balance of payments deficit under a system of fixed exchange rates, which of the following is NOT part of the automatic adjustment process?

A) a decrease in money supply leads to a lower level of spending
B) a decrease in aggregate demand lowers domestic prices
C) a decrease in domestic prices relative to foreign prices reduces the level of imports
D) an increase in tariffs reduces the level of imports
E) an increase in unemployment leads to lower wages