Question

Suppose that an exogenous disturbance, such as a change in government policy, leads to a balance of payments deficit and a consequent fall in the exchange rate. Discuss the effects of the new exchange rate level on the balance of payments and the exchange rate.

Answer 1

When there is a new exchange rate the balance of payment becomes hard contributing to unstable economy where it ends being difficult predicting goods and services' value. Similarly, this may affect export and import quantity and cost in the respective country. Balancing the labor on payment may be hard on respective situation based on the new value of the currency.