It is sometimes suggested that a floating exchange rate will adjust to reduce or eliminate any current account deficit. Explain why this adjustment would occur.
What will be an ideal response?
Answer: A current account deficit reflects a net sale of the home currency in exchange for other currencies. This places downward pressure on that home currency's value. If the currency weakens, it will reduce the home demand for foreign goods (since goods will now be more expensive), and will increase the home export volume (since exports will appear cheaper to foreign countries).
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Paul's Plumbing is a small business that employs 12 people. Which of the following is most likely to be a fixed cost for Paul's Plumbing?
a. The tax and insurance payments on the property owned by the firm. b. The wages paid to the 12 employees. c. The payroll taxes on the wages of the 12 employees. d. The salary paid to Paul, who is the manager of the firm.
Which of the following is true?
A. Japan has a high export ratio. B. Ireland has a low export ratio. C. The European nations tend to have lower export ratios. D. The United States has a very low export ratio.
Federal employment in the United States is dominated by what two functions?
A. National defense and postal service. B. Health care and police. C. Postal service and education. D. Health care and national defense.
An example of a government-imposed barrier to entry gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented. This entry barrier is known as
A) a copyright. B) a patent. C) an exclusive marketing agreement. D) a tariff.