If there are no reserves,domestic adjustments to payment imbalances under fixed exchange rates require surplus countries to forsake full employment and deficit countries to forsake price stability.

Question

Quizplus · Accepted Answer

Under fixed exchange rates, deficit countries typically need to adjust by reducing demand to lower imports and possibly devaluing their currency, which can lead to forsaking full employment. Surplus countries, on the other hand, face pressure to increase demand to raise imports and appreciate their currency, potentially impacting price stability, but not necessarily forsaking it. The statement incorrectly reverses the roles of surplus and deficit countries in terms of the economic adjustments they are pressured to make.

If There Are No Reserves,domestic Adjustments to Payment Imbalances Under