Then compute the net effects on the current account balance, the capital account balance and the official reserve settlements balance. Almania is a small country operating under a fixed exchange rate system. The country trades with the rest of the world, but capital flows to and from Almania are totally ruled out of strict capital exchange controls. In your report discuss and graph the effects of three policy alternatives on the domestic economy, the trade balance, and the capital account over time . Be sure to explain the channels of adjustment in each case.
Snafu is a small country operating under a fixed exchange rate system.
Explain the concepts of spillover and repercussion effects. Utilize the IS-LM framework. Economic analysis suggests that balance of payments equilibrium will always be restored automatically, whether a nation adopts a fixed or flexible exchange rate system. Yet in the real world, we observe chronic deficit or surplus conditions in balance of payments subaccounts. Be sure to explain the chain of events for each case.