ABSTRACT
While focusing so far primarily on balance-of-payments concepts and exchange-rate determination, we nevertheless have made frequent reference to the mechanism of balance-of-payments adjustment and policies to attain balance-of-payments equilibrium. We shall examine these latter topics in greater detail in the present chapter for the system in which exchange rates are freely fluctuating. The gold-standard and adjustable-peg systems will be treated in the following two chapters. Our objectives will be to uncover the important forces in the adjustment process that work more or less automatically and to indicate the governmental actions that may be necessary when the automatic adjustment forces are in themselves incomplete.
