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Title: Flexible exchange rates are supposed to prevent long-term trade deficits. Post by: John Mavor on Mar 9, 2022 Flexible exchange rates are supposed to prevent long-term trade deficits. Outline the process through which this is supposed to happen. Yet, the US has run persistent deficits starting in the early 1990s. What is it about the US that has prevented this adjustment from happening?
Title: Re: Flexible exchange rates are supposed to prevent long-term trade deficits. Post by: sarammm on Mar 10, 2022 (https://biology-forums.com/gallery/44/6_10_03_22_1_49_23.png) (https://biology-forums.com/index.php?action=gallery;sa=view&id=44600)
Title: Re: Flexible exchange rates are supposed to prevent long-term trade deficits. Post by: Yeah.Yeah. on Mar 10, 2022 The automatic adjustment mechanism is a market-driven mechanism in which there is no intervention of government. It is used to balance the deficit in the balance of payments. In this, the exchange rate is fixed but interest rates get change with time to time. In this, the balance of payment is in equilibrium.
Under the fixed exchange rate: In this, the gold standard is used and the exchange rate between the currencies is fixed. It results in the tremendous surplus because the price will encourage the sellers thus balancing the deficit in balance of payments. Under the flexible exchange rate: Under the flexible exchange rate system, the deficit in the balance of payments will automatically get balanced with the forces of demand and supply of foreign exchange. Does this help? |