Suppose the government of South Island has fixed the value of its currency, the Islandia, at $0.50 per Islandia, but the market equilibrium value of the Islandia is $0.75 per Islandia. In order to maintain the official value of the Islandia the Central Bank of South Island must either ________ domestic interest rates or supply Islandia, which causes the supply of international reserves to ________.
A. lower; decrease
B. raise; decrease
C. lower; increase
D. raise; increase
Answer: C
You might also like to view...
Refer to the scenario above. If the opportunity cost of time increases to $80 per hour, which of the following statements is true?
A) Maria should choose to drive as it saves her $10. B) Maria should choose to drive as it saves her $150. C) Maria should choose to travel by train as it saves her $10. D) Maria should choose to travel by train as it saves her $150.
Given the indifference curve in the above figure, which point is preferred to point a?
A) point b B) point c C) point d D) point e
When all the costs and benefits of a transaction are borne by the participants of that transaction, _____
a. the market outcome will be inefficient b. the private costs and social costs are identical c. negative externalities exist d. positive externalities exist e. the free rider problem arises
A short-run supply curve is
a. horizontal, summing individual supply curves b. temporary, and disappears when price rises c. downward sloping reaching the horizontal axis d. upward sloping e. vertical