Quelpr
3 marksBalance of Payments and Exchange Rates

CSEC Economics · May/June 2017 · Paper 2 · Question 3(d)(ii)

Caribville has a fixed exchange rate and is currently facing a serious balance of payments problem. Caribville usually exports a variety of goods and services. However, a hurricane destroyed a major export crop resulting in a significant reduction in net exports, leading to disequilibrium in its balance of payments.

Explain how devaluation can correct the disequilibrium in Caribville's balance of payments.

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Other parts of this question

  1. 3(a)(i)Define the term 'Exchange rate devaluation'.[2 marks]
  2. 3(a)(ii)Define the term 'Floating exchange rate'.[2 marks]
  3. 3(b)List ONE protectionist measure used by countries to restrict trade.[1 mark]
  4. 3(c)Discuss TWO factors that can influence the level of the exchange rate in a country.[6 marks]
  5. 3(d)(i)State the name of the type of account in the balance of payments that shows the reduction in net exports.[1 mark]

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