Explain and demonstrate graphically the situation of an overvalued exchange rate in a fixed exchange rate system. What alternative policies are available to eliminate the overvaluation of the exchange rate?
What will be an ideal response?
See the figure below.
The par value is above the equilibrium value, resulting in overvaluation of the exchange rate. One approach is to pursue contractionary monetary policies, raising interest rates and increasing the demand for domestic assets. This process continues until equilibrium at par value is restored. Another alternative is for the central bank to purchase domestic currency by selling foreign assets.
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Explain the difference between the marginal rate of substitution and the marginal rate of transformation
What will be an ideal response?
Mean
What will be an ideal response?
B. how to distribute resources equally among all members of society. C. that people's means often exceed their wants. D. that people do not know how to rationally allocate resources
A. virtually unlimited resources to satisfy virtually unlimited wants. B. limited resources to satisfy virtually unlimited wants. C. unlimited resources to satisfy limited wants. D. limited resources to satisfy limited wants.
In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the
equilibrium quantity (Q) of X. Refer to the given information. An increase in the price of a product that is a complement to X will: A. decrease S, decrease P, and decrease Q. B. decrease D, decrease P, and decrease Q. C. increase D, increase P, and increase Q. D. increase D, increase P, and decrease Q.