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JAMB Economics 1991 Question 42

Question 42

Balance of Payments and Exchange Rates

Under flexible exchange rates, a deficit could be corrected by

  1. A.freezing the gold point
  2. B.appreciation of other currencies
  3. C.removing export subsidies
  4. D.removing tariffs
Show the answer and explanation

Answer: B (appreciation of other currencies)

Explanation

If other currencies rise in value, the deficit country's exports become cheaper abroad and imports dearer at home, which reduces the deficit.