The TB (IE

Multiple Choice

The TB (i.e., X - M) is part of the short-run spending equation. With sticky prices, what would be the effect on the TB with an increase (a real depreciation) of the home nation's exchange rate?

A) Consumers in the home nation would find it more expensive to buy domestic goods compared with foreign goods, and the TB would decrease.
B) Consumers in the home nation would cut back on both domestic and foreign goods and the TB would decrease.
C) Consumers in the home nation would increase spending on both domestic and foreign goods, and the TB would be unchanged.
D) Consumers in the home nation would increase spending on domestic goods and decrease spending on foreign goods, causing the TB to increase.