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Describe the term- higher national income and interest rate
This causes country B to adjust to point B with both a higher national income and interest rate. At this point the foreign rate of interest is above the world rate of interest. Country B will, therefore, experience an incipient balance of payments surplus. At point B neither country has balance of payments equilibrium. This disequilibrium will induce further adjustment and spillover effects, the nature of which depends on the exchange rate regime between the two countries.
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