The demand for euros in the foreign exchange market equals 8,000 - 2,000 e and the supply of euros in the foreign exchange market equals 3,000 + 3,000 e, where e is the nominal exchange rate expressed in U.S. dollars per euro. If the euro is fixed at 0.85 U.S. dollars per euro, then the euro is ________ and Euroland has a balance-of-payments ________.
A. overvalued; deficit of 750 euros
B. undervalued; surplus of 750 euros
C. undervalued; deficit of 750 euros
D. overvalued; surplus of 750 euros
Answer: B
You might also like to view...
When economists say that the demand for labor is a derived demand, they mean that it is
A. related to the demand for the product or service labor is producing. B. based on the assumption that workers are trying to maximize their money incomes. C. dependent on government expenditures for public goods and services. D. based on the desire of businesses to exploit labor by paying below equilibrium wage rates.
The Coase theorem is the proposition that if property rights exist, the number of parties is small, and transactions costs are low
A) external costs result in deadweight losses. B) external benefits result in deadweight losses. C) private transactions are efficient. D) public transactions are efficient.
For barter to occur, there has to be a double coincidence of wants
Indicate whether the statement is true or false
To calculate the multilateral effective exchange rate for a nation for each trading partner:
a. add the share of trade to the % change in the exchange rate and add the sums. b. divide the share of trade by the % change in the exchange rate and add the dividends. c. subtract the share of trade from the % change in the exchange rate and add the differences. d. multiply the share of trade by the change in the exchange rate and add the products