Home /
Expert Answers /
Electrical Engineering /
i-1-explain-the-adjustment-mechanism-by-which-external-balance-is-achieved-under-fixed-exchange-pa495
(Solved): I. 1) Explain the adjustment mechanism by which external balance is achieved under fixed exchange ...
I. 1) Explain the adjustment mechanism by which external balance is achieved under fixed exchange rates. 2) Comment on the implications of the adjustment mechanism explained in part (1) for the effectiveness of monetary policy. 3) Comment on the implications of the adjustment mechanism explained in part (1) for the effectiveness of fiscal policy.
Expert Answer
1) A country's central bank must intervene in foreign exchange (Forex) markets, buying foreign currency when there is excess supply (resulting in a balance of payments surplus) and selling foreign currency when there is excess demand (resulting in a