Figure 19-2

-Of the graphs in Figure 19-2, where the broken line represents the fixed exchange rate, which one shows a reduction in the price level in Japan that would reduce a balance of payments deficit?

Question

Figure 19-2
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-Of the graphs in Figure 19-2, where the broken line represents the fixed exchange rate, which one shows a reduction in the price level in Japan that would reduce a balance of payments deficit?

Quizplus · Accepted Answer

Graph 1 would show a reduction in the price level in Japan leading to a decrease in imports and an increase in exports, which would reduce a balance of payments deficit by making Japanese goods more competitive internationally.

Figure 19-2 ​

Figure 19-2