Internal and external balance mean in international finance

A 21- day lockdown in the wake of COVID-19 in India has left thousands of migrant laborers who work as a daily wager with no income. Suppliers in the country are going through a massive loss in their factories due to decrease in the demand of the garment which have turned into partially shut down or completely shutdown of the factories leaving workers on roads with or without the legally mandated pay. According to a research report by Penn State University’s Center for Global Workers’ Rights(CGWR), thousands of garment factories have already shutdown leaving employees unpaid. A lot of clothing suppliers said that they had to stop most or all of their operations because of order cancellations or lack of flow in the currency. The survey revealed that more than 72 percent of buyers refused to pay for raw materials like fabric and others that had already been purchased in the month of march keeping in the month about the production of garments in future month. Some of the owners have also refused to pay to the workers because of no income from backend. The government has come up with the solution to shut down the companies and stores as part of social distancing measures cutting down the demand for new clothes has simultaneously descend as shoppers stay home and stop buying anything that isn’t essential. Almost every store which deals in fashion brands are now closed temporarily due to the unforeseen circumstances, they are facing losses based on every day but can survive in the market only if the merchandise on the back hand already in production get their payments cleared for the previous orders placed by the fashion brands. Only after this process is taken forward smoothly, the laborers who are on roads now because of the Covid-19 will be able to get their un cleared wages and will be back on the track once the fear of the outbreak of pandemic gets over.

Sample Solution

Internal balance is defined as a situation in which real output is at or close to its potential or capacity level, and the inflation rate is low and nonaccelerating. According to this definition, neither of the following two situations is considered to be in internal balance: low inflation combined with slow or negative growth, or rapid growth combined with high inflation. External balance is often defined as a current account position that can be sustained by capital flows on terms compatible with the growth prospects of the economy without resort to restrictions on trade and payments, so that the level of international reserves is adequate and relatively stable. External balance does not necessarily correspond to a zero current account balance or a zero overall balance of the balance of payments, but for simplicity both notions, although not equivalent, can be used. Both internal balance and external balance depend on two fundamental variables—the level of real domestic demand and the real exchange rate—which, in turn, reflect underlying economic conditions and macroeconomic policies.