the goals of the IMF (3)

As you may remember,the conceptual gold standard adjustment mechanism involved,for deficit countries,a fall in wages and prices as gold flowed out.This mechanism,or the alternative mechanism of an increase in interest rates to attract foreign short-term capital,posed the difficulty that the resulting contraction of economic activity could cause a rise in unemployment and a fall in real income.in contrast,a surplus country experienced upward pressure on its wages and prices ,downward adjustments in its interest rates,and the resulting threat of inflation .but ,if the rules of the game were being followed,internal objectives were to be sacrificed to the objective of attaining balance-of-payments equilibrium .after the great depression of the 1930s, governments were unwilling to use their monetary and fiscal policy instruments solely for external balance .Conflicts arose between the external target and the internal targets of macroeconomic policy.The IMF sought to reduce this conflict.Attempts were made to alleviate the conflict through the use of loans by the IMF to deficit countries. The rationale behind these short-term loans (three to five years) was that a country is BOP deficit might be temporary because of the stage of the business cycle in which the country was located.