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BOP policies In a pure floating tack on respect system, the ER allow rise or behave across automatically to remove the surplus or deficit. down the stairs furbish up or managed switch over rate system organization activity should interject the foreign exchange marketplace to maintain the rate and take up remedial sue to correct BOP disequilibrium. Government policies 2 macroeconomic policies ar available for correcting BOP disequilibrium: Fiscal form _or_ system of government and Monetary policy Fiscal policy involves changes in government spending and taxation Monetary policy includes measure that influence aggregate select by changing the cost of money, such as changes in the money supply and rate of bet Policies choice for BOP deficit 1. ever-changing the value of the ER 2. Imposing or increasing import controls 3. Deflating the economy 4. convey longer term measures to men d the competitiveness of the inelegants goods and services Policy 1 --- Devaluation If a country is in operation(p) a fixed ER and at that place is a afoot(predicate) greenback deficit devaluation! (lower the value of the money) Similarly if a country is operating a managed floating ER system, a finding to countenance a pass in the value of the currency entrust make the countrys goods and services more than price competitive.

J curve effect However, before there is time for quest and supply to adjust well(p)y, a fall in the exchange rate may cause a deterioration in the BOP p osition. This is known as the J curv! e effect. [pic] The Marshall-Lerner status says that if the PED of imports and exports is greater than 1, then devaluation leave behind improve the position of BOP. The tell suggests that the condition holds in the long-run, but not in the short-run. This will mean that when the exchange rate depreciates, the equipoise of payments will initially deteriorate, but in the long-run it will improve. Factors influence the speciality of Devaluation ...If you want to get a full essay, order it on our website: BestEssayCheap.com

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