The __________ provides a less painful adjustment mechanism to trade imbalances than do fixed exchange rates and prevents a country from having large persistent deficits.

Question

Quizplus · Accepted Answer

A flexible exchange rate system allows for the exchange rate to adjust to trade imbalances, making it a less painful mechanism compared to fixed exchange rates. This system also prevents a country from having large persistent deficits by allowing depreciation in the exchange rate, making exports cheaper and imports more expensive.

The __________ Provides a Less Painful Adjustment Mechanism to Trade