economic growth

In this article I will explain you the balance Balance of payments model and Asset market model.

Balance of Payments Model 

This model holds that a foreign exchange rate must be at its equilibrium level.It is the rate by which a stable current account balance is produced. A nation that is facing a trade deficit will experience reduction in its foreign exchange reserves and due to this the value of its currency will  ultimately lowers (depreciates). The nation’s goods (exports) become more affordable in the global market place due to the cheaper currency while it makes imports more expensive. After that an intermediate period is reached then the imports are forced down and exports rise, thus it stabilizes the trade balance and push the currency towards equilibrium.

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