(a)
- Summarise how the US current account balance performed between 1980 and 2002. [2]
- Explain how the US may have financed the current account position it faced between 1992 and 2002. [3]
(b)[3]
Suppose a country has a surplus on its current account. Explain how this could affect its exchange rate.
(c)
- Outline the likely effect of a depreciation of a country’s exchange rate on its current account balance. [3]
- Use Fig. 1 and Fig. 2 to analyse whether this expected effect of exchange rate depreciation happened for the US between 1980 and 2002. [3]
(d)[6]
Discuss whether a government should attempt to fix its country’s exchange rate.