If there is a balance of payments deficit then in a floating exchange rate system ?
Correct answer: A. The external value of the currency would tend to fall
- A. The external value of the currency would tend to fall
- B. The external value of the currency would tend to rise
- C. The injections from trade are greater then the withdrawals
- D. Aggregate demand is increasing
Explanation
In a floating exchange-rate system, a balance-of-payments deficit creates excess supply of the domestic currency in the foreign-exchange market. Its external value therefore tends to depreciate.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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