Explain how the exchange rate gets determined in a flexible exchange rate system.
What will be an ideal response?
If the foreign exchange rate floats freely, the demand for and the supply of foreign currency determine foreign exchange rates. The exchange rate for any foreign currency is the rate at which the quantity of that currency demanded is equal to the quantity supplied. A change in the demand for or the supply of foreign currency will cause a change in the exchange rate for that currency. When there is an increase in the price paid in dollars for a foreign currency, the dollar has depreciated and the foreign currency has appreciated in value. Conversely, when there is a decrease in the price paid in dollars for a foreign currency, the dollar has appreciated and the foreign currency has depreciated in value.
The demand for and supply of a foreign currency can change for many reasons. These shifts occur because of changes in tastes, relative incomes, relative price-levels, relative interest rates, and speculation.
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Before World War I, most countries belonged to a system of fixed exchange rates in which currencies were tied to which of the following assets?
A) The U.S. dollar B) The British pound C) Silver D) Gold
The use of pollution charges to reduce pollution confronts the problem of
a. free riders who avoid revealing benefits from abatement. b. determining specific individual damages and appropriate charges associated with pollutants. c. necessarily lowering the price of the products. d. requiring no agency to administer the tax.
When only one buyer has access to a particular labor market,
A. There is no seller concentration. B. A monopoly exists. C. A monopsony exists. D. There is no buyer concentration.
________: shift in the demand curve caused generally by changes in the prices of complements or substitutes, income, and tastes and preferences
Fill in the blank(s) with correct word