Answer to Question #222310 in Macroeconomics for KKD

Question

If a change in government policy leads to a balance of payment deficit and fall in the exchange rate, what will be the effect of the new exchange rate level on balance of payment and exchange rate.

Answer 1

In case there is a change in a country's balance of payments can lead to fluctuations in the exchange rate between its currency and foreign currencies. The reverse is also true when a fluctuation in relative currency strength can alter balance of payments.