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19 figure 3. Freedpeople as dependent paupers and recipients of special privileges. (Democratic
20 broadside from 1866 election, Pennsylvania, Library of Congress)
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22 The nominal rise in income would lead to an increase in imports
23 because domestic production of goods would not have changed. Imports
24 would cause the terms of trade to worsen since the country would now
25 move closer to a trade deficit. Likewise, reserves would also fall because
26 the country’s central bank would have to use its reserves to buy extra
27 domestic currency in order to keep the exchange rate fixed. The subse-
28 quent lowering of reserves would eventually offset the rise in the money
29 supply. Yet a country in this situation would be left with higher prices,
30 worsening balance of payments, and lowered reserves. The decrease in
31 reserves would encourage speculation against the currency and thereby
32 threaten the stability of the fixed exchange rate of the country.
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34 this is an example of c head. While race and class crucially shaped
35 the IMF used this model in its lending practices. In exchange for access
36 to IMF loans, countries were expected to reach financial targets aimed at
37 improving the balance of payments, lowering prices, raising reserves, and
38 thus ultimately maintaining the integrity of the fixed exchange system.
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