Completely flexible exchange rates are fairly self-explanatory, and hard pegs include dollarization and currency boards. These seem to be the extremes. Assuming free flow of capital, why do you think soft pegs are never used?
What will be an ideal response?
A soft peg is likely to be a range within which the central bank agrees to keep the exchange rate. The problems with soft pegs include a lack of credibility and then the likelihood for speculative attack. If the peg isn't hard, the central bank can always alter the range as it is convenient. Also, since speculators know the peg isn't fixed and can be altered, the currency would become attractive for attack. As a result, it seems that the only alternatives are to have a completely flexible exchange rate where the monetary authorities do not commit to any peg and the market sets the exchange rate or a completely hard peg where a fixed exchange rate is maintained and the market determines the interest rate.
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A) increasing. B) decreasing. C) stagnant. D) unpredictable.
Horizontal equity can be determined by comparing the
A. Marginal tax rate of the taxpayer with the highest nominal income to the marginal tax rates of taxpayers with lower nominal incomes. B. Marginal tax rates for two taxpayers with the same nominal incomes. C. Effective tax rate of the taxpayer with the highest nominal income to the effective tax rates of taxpayers with lower nominal incomes. D. Effective tax rates for two taxpayers with the same nominal incomes.
If individuals who sit in the back of the classroom receive lower grades on average than the rest of the class, does that mean that sitting in the back of a classroom causes one to perform poorly on exams?
A. Not necessarily. The reoccurrence of a certain relationship between two variables does not necessarily imply causation. B. It is not possible for an economist to determine causation between variables. C. The reoccurrence of such a relationship is sufficient evidence that sitting in the back of a classroom will lead to lower grades. D. The reoccurrence of such a relationship is sufficient evidence that students who receive low grades prefer to keep a low profile and always sit in the back of the classroom.
Some argue that Sweden's generous welfare benefits, which pay people who lose their jobs as much as 80 percent of previous incomes for three years, has resulted in too-high unemployment. This can be seen as an example of:
A. government not correcting externalities produced by the market. B. globalization causing hardworking youth to emigrate. C. market failure due to unfair conditions produced by the labor market. D. government failure in fostering a competitive market environment.