If an economy has a deficit or surplus:?

Question

a) External balances can be achieved only through exchange rate policy.

b) External balances can be achieved without the using exchange rate policy.

c) It will never be able to achieve internal balnces.

d) None of the above.

Answer 1

"B" should be right - because some economies have fixed exchange rate policies - balances are factors of economy output and aggregate demand, economy may unable to demand more than it can produce thus reducing gap of deficit or may start to consume more thus eliminating surplus gap.