With Flexible Exchange Rates

question 108

Multiple Choice

With flexible exchange rates

• A)The equilibrium exchange rate is determined in a foreign exchange market.
• B)The balance of trade is zero.
• C)Foreign exchange reserves are used to offset balance-of-payment deficits.

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Definitions:

Inflation Rate

The level of acceleration in the overall pricing of goods and services, resulting in a decline in buying efficiency.

Nominal Interest Rate

The rate of interest before adjusting for inflation, representing the face value of interest payments made on savings or loans.

Real Interest Rate

The interest rate adjusted for inflation, representing the real cost of borrowing and the real yield to lenders.

Inflation

A general increase in prices and fall in the purchasing value of money over time.