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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A) increased by 10.5 percent B) decreased by 10.5 percent C) increased by 8.4 percent D) decreased by 8.4 percent
If the exchange rate changes from $1.45 = 1 euro to $1.37 = 1 euro, then
A) both the euro and dollar have appreciated. B) the euro has appreciated and the dollar has depreciated. C) the euro has depreciated and the dollar has appreciated. D) both the euro and dollar have depreciated.
A profit center
a. Is very complicated to run and manage b. Doesn't require a lot of attention from executives at the firm's headquarters c. Requires the parent company's highest degree of attention d. Does not properly incentivize the managers when it comes to their own division's performance
Keynesians tend to not believe in the stability of free markets
Indicate whether the statement is true or false