Under flexible exchange rates,a trade deficit is automatically corrected by a deprecation of the deficit nation's currency.

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Under flexible exchange rates, the market forces determine the value of a currency. If a country has a trade deficit, the demand for its currency decreases, which results in a depreciation of its currency. This makes the country's exports cheaper and imports more expensive, which eventually corrects the trade deficit.

Under Flexible Exchange Rates,a Trade Deficit Is Automatically Corrected by a Deprecation