In a system of fixed exchange rates, the automatic balance-of-payments adjustment process for a country with a balance-of-payments deficit would theoretically involve, among other things, __________ in the interest rate and __________ in national income.
A) a decrease; a decrease
B) a decrease; an increase
C) an increase; a decrease
D) an increase; an increase

Question

Quizplus · Accepted Answer

In a fixed exchange rate system, a country with a balance-of-payments deficit would theoretically need to increase interest rates to attract foreign capital and decrease national income to reduce import demand, thereby helping to correct the deficit.

In a System of Fixed Exchange Rates, the Automatic Balance-Of-Payments