Under a fixed exchange rate regime, what will happen to the balance of payments for the United States and Mexico when the demand for Mexican goods rises? What is the only possible solution to this problem, given the fixed exchange rate?
What will be an ideal response?
Under a fixed exchange rate regime, when the demand for Mexican goods rises, Americans will attempt to sell dollars and buy pesos. The excess demand for pesos implies a balance-of-payments deficit for the United States and a balance-of-payments surplus for Mexico. The only solution is to alter market supply or demand so that they intersect at the fixed rate. This can be accomplished by changes in fiscal, monetary, or trade policies. The U.S. government could also sell foreign exchange reserves to relieve the excess demand.
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Which of the following is true?
i. The advanced economies account for more than half of global production. ii. Almost four out of every five people in the world live in the developing economies. iii. In the advanced economies, agriculture accounts for a larger part of total production than in the developing economies. A) Only i and ii B) Only ii and iii C) Only i and iii D) Only i E) i, ii, and iii
In a system of flexible exchange rates, a reduction in the money supply will cause
a. a rise in the value of the dollar relative to foreign currencies. b. a fall in the value of the dollar relative to foreign currencies. c. no change in the value of the dollar relative to foreign currencies. d. a change in the value of the dollar relative to foreign currencies but the direction of the change is uncertain.
The total cost of producing one unit is $50. The total cost of producing two units is $75. At a production level of two units, the cost function exhibits
A) economies of scale. B) rising average costs. C) increasing marginal costs. D) constant returns to scale.
The study of how people work together to transform resources into goods and services to satisfy their most pressing wants is
a. sociology b. economics c. psychology d. anthropology e. management