Under a Fixed Exchange Rate System

question 19

Multiple Choice

Under a fixed exchange rate system:

• A) ​a foreign exchange market does not exist.
• B) ​central bank intervention in the foreign exchange market is not necessary.
• C) ​central bank intervention in the foreign exchange market is often necessary.
• D) ​central bank intervention in the foreign exchange market is not allowed.

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Definitions:

Behavioral Economists

Economists who study how psychological, social, cognitive, and emotional factors affect the economic decisions of individuals and institutions.

Inconsistent Anchoring

A cognitive bias where individuals rely too heavily on an initial piece of information (anchor) to make subsequent judgments but inconsistently adjust away from that anchor.

Prospect Theory

A behavioral economic theory that describes the way people choose between probabilistic alternatives that involve risk, where the probabilities of outcomes are known.

Matching Contribution

A contribution to a retirement plan, for instance, where an employer matches the employee's contribution up to a certain percentage.