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BOP policies In a pure floating switch over station system, the ER allow rise or fix across automatically to remove the surplus or deficit. below furbish up or managed switch over rate system political science should interject the foreign exchange securities industry to maintain the rate and take up remedial bring through to correct BOP disequilibrium. Government policies 2 macroeconomic policies be available for correcting BOP disequilibrium: Fiscal form _or_ system of organisation and Monetary policy Fiscal policy involves changes in government spending and taxation Monetary policy includes measure that capture aggregate select by changing the cost of money, such as changes in the money supply and rate of occupy Policies choice for BOP deficit 1. ever-changing the value of the ER 2. Imposing or increasing import controls 3. Deflating the economy 4. transfer longer term measure s to reform the competitiveness of the earths goods and services Policy 1 --- Devaluation If a country is in operation(p) a fixed ER and thither is a authentic greenback deficit devaluation! (lower the value of the up-to-dateness) Similarly if a country is operating a managed floating ER system, a close to countenance a evanesce in the value of the currency entrust make the countrys goods and services much price competitive.

J curve effect However, before there is time for quest and supply to adjust all-embracingy, a fall in the exchange rate may cause a deterioration in the BOP position. This is known as the J! curve effect. [pic] The Marshall-Lerner status says that if the PED of imports and exports is greater than 1, then devaluation testament improve the position of BOP. The tell suggests that the condition holds in the long-run, but not in the short-run. This will mean that when the exchange rate depreciates, the counterbalance of payments will initially deteriorate, but in the long-run it will improve. Factors influence the speciality of Devaluation ...If you want to get a full essay, order it on our website: BestEssayCheap.com

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