Question

The Meaning of International Macro Economic Stability

Mercantilism

Devaluation Wars and Their Effect on Cooperation

Fixed Exchange Rate System in Bretton-Woods System

IMF's policies to fix the Trade Account Deficit Problem in Developing Countries

Answer 1

International Macro Economic Stability for an economy happens it has minimised its vulnerability to external shocks and hence there is a sustained economic growth in the country irrespective of the external environment in the international market. It acts as a buffer against any fluctuations in currency and interest in the international market.

Mercantilism : An economic theory according to which trade accumulates wealth and is stimulated by the accumulation of profitable balances. This theory considers wealth in the world as static. IThe goal as per Mercantilism was to increase a nation's wealth by imposing government regulation that maximise the trade of an economy.

Devaluation Wars and Their Effect on Cooperation

Devaluation war is a condition in international trade where a country in order to have a trade advantage over other countries, decreases the exchange rate of its currency in relation to other currencies.

As the exchange rate of a country's currency falls its exports become cheaper compared to other countries and imports into the country become expensive. This benefits the domestic industry and increases employment in the economy which inturn increases aggregate demand in the country as well as in the foreign markets. When all countries adopt a similar strategy, it can lead to a general decline in international trade which inturn creates a negative impact for all countries.

Fixed Exchange Rate System in Bretton-Woods System

Bretton Woods System provided a system of fixed exchange rate by IMF and IBRD. The rules encourage an open system by committing members to the convertibility of their respective currencies into other currencies and to free trade.

It led to emergence of "pegged rate" currency regime. Members were therefore required to maintain a parity of their national currencies in terms of the reserve currency (a "peg") and to maintain exchange rates within parity (a "band"), this band was plus or minus 1% of parity. They have to do this by buying or selling foreign money in their foreign exchange market.