Question

which system would be accompanied by occasional currency interventions by central banks to stabilize or alter rates to avoid persistent balance of payments deficits or surpluses?

Answer 1

The system that would be accompanied by occasional currency interventions by central banks to stabilize or alter rates to avoid persistent balance of payments deficits or surpluses is the managed float exchange rate system.

Step-by-step explanation:

The system that would be accompanied by occasional currency interventions by central banks to stabilize or alter rates to avoid persistent balance of payments deficits or surpluses is the managed float exchange rate system.

In a managed float exchange rate system, the exchange rate is allowed to fluctuate based on market forces, but the central bank also intervenes when necessary to stabilize the exchange rate and prevent extreme fluctuations. This intervention can involve buying or selling the country's currency in the foreign exchange market to influence its value.

For example, if a country's currency is experiencing a rapid depreciation, the central bank may intervene by buying its own currency and selling foreign currencies to increase demand and raise the value of the currency. On the other hand, if the currency is appreciating too rapidly, the central bank may sell its own currency and buy foreign currencies to decrease demand and lower the value of the currency.