Under a system of free-floating exchange rates, a nation will experience

Question

Quizplus · Accepted Answer

Under a system of free-floating exchange rates, the exchange rate adjusts to bring about equilibrium in the balance of payments. This means that the current account (which includes the balance of trade) will tend to balance over time, with deficits and surpluses being self-correcting. Therefore, there is a tendency toward equilibrium in the balance of payments, rather than persistent surpluses or deficits in the balance of trade.

Under a System of Free-Floating Exchange Rates, a Nation Will