How are flexible exchange rates used to eliminate a balance-of-payments deficit or surplus?
What will be an ideal response?
Flexible exchange rates can be used to eliminate a balance-of-payments deficit or surplus. When a nation has a balance-of-payments deficit, foreign exchange rates will increase, thus making foreign goods and services more expensive and decreasing imports. These events will make a nation’s goods and services less expensive for foreigners to buy, thus increasing exports. With a balance-of-payments surplus, the exchange rates will increase, thus making foreign goods and services less expensive and increasing imports. This situation makes a nation’s goods and services more expensive for foreigners to buy, thus decreasing exports.
You might also like to view...
As real Gross Domestic Product (GDP) decreases, people hold
A) about the same amount of money since that has been enough in the past. B) less money because they will want to collect interest. C) more money because they will want to increase the amount of savings. D) less money since they will make fewer purchases.
Explain why insurance companies usually do not offer earthquake insurance
What will be an ideal response?