Figure 19-2

-Of the graphs in Figure 19-2, where the broken line represents the fixed exchange rates, which one shows how a balance of payments deficit could be reduced through a recession in Japan?

Question

Figure 19-2
​ 
-Of the graphs in Figure 19-2, where the broken line represents the fixed exchange rates, which one shows how a balance of payments deficit could be reduced through a recession in Japan?

Quizplus · Accepted Answer

In graph 2, a recession in Japan (represented by a decrease in Japan's aggregate demand) would lead to a decrease in imports, which would help to reduce the balance of payments deficit. Additionally, the decrease in aggregate demand would lead to a decrease in Japan's demand for foreign currency, causing its currency value to depreciate, which would also help to reduce the balance of payments deficit.

Figure 19-2 ​

Figure 19-2