Author Question: The alteration of exchange rates to move the economy to internal and external balance may lead to ... (Read 38 times)

bucstennis@aim.com · **on:** Jun 30, 2018

The alteration of exchange rates to move the economy to internal and external balance may lead to all EXCEPT

A) a balance of payments crisis.
B) changes in the terms of trade.
C) changes in the level of imports or exports.
D) changes in interest rates.
E) a guaranteed unilateral improvement in economic wealth.

Question 2

Bank failure may not be limited to banks that have mismanaged their assets. Explain why?

What will be an ideal response?

cloudre37 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

E

Answer to Question 2

A sound bank faced with the wholesale loss of deposits is likely to close its door even if the asset side of its balance sheet is fundamentally sound because many bank assets are illiquid and cannot be sold quickly to meet deposit obligations without substantial loss to the bank. Students should stress the atmosphere of financial panic, which will lead to self-fulfilling expectations.