In a Situation of a Fixed Exchange Rate, Explain Why

question 7

Essay

In a situation of a fixed exchange rate, explain why, in the monetary approach, an excess supply of money leads to a balance-of-payments deficit. Why is the deficit only temporary? How might advocates of the monetary approach explain a long-lasting deficit in the balance of payments?

---

Definitions:

Venous Congestion

An accumulation of an excessive amount of blood in the veins, usually causing increased pressure and swelling in affected areas.

Hydrostatic Pressure

Pressure caused by a liquid.

Right Heart Failure

A condition in which the right side of the heart cannot pump blood to the lungs effectively, often due to lung diseases or left heart failure.

Osmotic Pressure

Drawing power for water, which depends on the number of molecules in the solution.