Under flexible exchange rates, a deficit could be corrected by?
Answer Details
Under flexible exchange rates, a deficit could be corrected by an appreciation of the currency relative to other currencies.
A deficit occurs when a country's imports exceed its exports, which can lead to a decrease in the value of its currency relative to other currencies. This can make imports more expensive and exports cheaper, which can help to correct the deficit.
Under flexible exchange rates, the value of a country's currency is determined by the market forces of supply and demand. If there is an excess supply of a currency, its value will decrease, while a shortage of a currency will cause its value to increase.
Therefore, if a country has a deficit, its currency will likely decrease in value relative to other currencies, which can help to correct the deficit by making its exports cheaper and imports more expensive. This can lead to an increase in demand for its exports and a decrease in demand for its imports, which can help to balance its trade.
In summary, under flexible exchange rates, a deficit can be corrected by an appreciation of the currency relative to other currencies, which can help to balance a country's trade by making its exports more competitive and its imports less attractive.