While it is true that central banks of many countries intervene in the foreign exchange market, why wouldn't it be correct to say that central banks of these countries fix the exchange rates?
What will be an ideal response?
As the opening of this chapter points out, central banks intervene (though not frequently) in foreign exchange markets. They do this whenever they feel the exchange rate may not reflect the basic fundamentals of the underlying economies. While these interventions do happen, the central banks of most countries do not fix the exchange rates. For most countries the exchange rate is determined by the market forces of supply and demand.
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Governments prefer to avoid excessive current account surpluses because
A) the returns to domestic savings are more difficult to tax than those on assets abroad. B) an addition to the home capital stock may increase domestic unemployment and therefore lead to higher national income. C) foreign investment in one firm may have beneficial technological spillover effects on other foreign producers that the investing firm does not capture. D) an addition to the home capital stock may reduce domestic unemployment and therefore lead to higher national income. E) domestic savings increase with more investment abroad.
Which of the following firms is the closest to being a perfectly competitive firm?
a. the New York Yankees b. Apple, Inc. c. DeBeers diamond wholesalers d. a wheat farmer in Kansas
The main reason for the decline in real wages in the 1970s and 1980s was
A. our high rate of productivity growth. B. our low rate of productivity growth. C. that so many housewives joined the labor force. D. people couldn't find jobs.
By offering training to workers whose firms laid them off because of competition from foreign firms, the federal government is attempting to reduce
A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) seasonal unemployment.