Question: Exchange rate effects on trade. a. Explain why a stronger dollar could enlarge the Australian balance of trade deficit. Explain why a weaker dollar could

Exchange rate effects on trade. a. Explain why a stronger dollar could enlarge the Australian balance of trade deficit.

Explain why a weaker dollar could affect the Australian balance of trade deficit.

b. It is sometimes suggested that a floating exchange rate will adjust to reduce or eliminate any current account deficit. Explain why this adjustment would occur.

c. Why does the exchange rate not always adjust to a current account deficit?

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