Explain the automatic correction mechanism that drives a country's current account balance to zero
The foreign exchange market will depreciate the exchange rate of economies with negative balances on
current account. As their exchange rates fall, exports will rise and imports will fall until, eventually, a zero
balance on current account is achieved.
You might also like to view...
Suppose the government has a $180 billion budget deficit. If the government creates $95 billion of new money to finance this deficit and finances the rest by borrowing, the amount borrowed from the public will be
A) $85 billion. B) $95 billion. C) $180 billion. D) $275 billion.
Assume a company is at a point in production where marginal product is above average product. Which of the following must be true?
A. Marginal product must be rising. B. Diminishing marginal product must not have set in yet. C. Average product must be rising. D. All of these are true.
A currency appreciation is a(n):
A. reduction in the official value of a currency in a fixed-exchange-rate system. B. increase in the value of a currency relative to other currencies. C. decrease in the value of a currency relative to other currencies. D. increase in the official value of a currency in a fixed-exchange-rate system.
One obstacle to the adoption of the export promotion model by countries in other regions is that
A) the Uruguay Round of the GATT forbids many types of export promotion policies. B) research and development for new exports is too expensive. C) only noncommercial R&D is permitted under the rules of the GATT. D) industrial monopolies in the high-income countries will block further exports by developing countries.