Discuss how trade policies can be used to maintain a fixed exchange rate.
What will be an ideal response?
If a country hopes to maintain a certain exchange rate, it will need to control the flow of trade and finance. Suppose China pegs its currency to the U.S. dollar. If China were to face a shortage of dollars, it should attempt to decrease imports and increase exports. To limit the amount of goods and services imported from the United States it may implement barriers of trade, such as tariffs, quotas, and taxes on financial assets. To increase exports to the United States subsidies and other incentives could be used. If China were to face a surplus of dollars the reverse should be done: increase imports and decrease exports.
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Ford Motor Corporation is considering purchasing new technology that will increase productivity by twenty percent. If Ford Motor Corporation decides to make this investment at the going real interest rate, then
A) Ford's profits will decline. B) the demand for loanable funds increases. C) the supply of loanable funds increases. D) the quantity of loanable funds demanded increases. E) saving increases.
When Maria deposits $100 in currency in her checkable deposit at Bank of America, the immediate effect is that the quantity of M1
A) decreases. B) does not change. C) increases. D) changes, but the direction of the change depends on whether the deposit was accepted by a thrift institution or a commercial bank. E) changes only if Bank of America does not have excess reserves.
Figure 5-12
In Figure 5-12, if a consumer equilibrium moves from B to A, this shows that
A. beer is an inferior good, but wine is a normal good. B. wine is an inferior good, but beer is a normal good. C. both beer and wine are normal goods. D. both beer and wine are inferior goods.
All of the following are criticisms of the Lorenz curve EXCEPT
A) The Lorenz curve does not include in-kind transfers. B) The Lorenz curve does not account for age differences. C) The Lorenz curve does not account for differences in the sizes of families. D) The Lorenz curve does not account for differences in education levels.