Question details

Suppose a that a nation is at full employment without inflation but has a deficit
$ 10.00

(Suppose a that a nation is at full employment without inflation but has a deficit in its balance of payments)

1. Explain why a depreciation of the nations currency will not correct a deficit unless real output rises or domestic expenditure (absorption) fall?

2. How can the nations output rise as a result of the depreciation?

3. how can domestic absorption fall automatically as a result of the depreciation?

4. How can the government help reduce domestic absorption and make the devaluation effective?

Available solutions