Under a System of Flexible Exchange Rates, Which of the Following

question 80

Multiple Choice

Under a system of flexible exchange rates, which of the following will cause the nation's currency to depreciate in the exchange market?

• A) an increase in foreign incomes
• B) a domestic inflation rate of 10 percent while the nation's trading partners are experiencing stable prices
• C) an increase in domestic interest rates
• D) a reduction in interest rates abroad

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Definitions:

Predict Behavior

Predicting behavior involves using information and analysis to foresee the actions of individuals or markets in specific situations.

Oligopolistic Firms

Companies that operate in an industry dominated by a small number of players, where each one has some degree of market power.

React to Each Other

The interaction or response of entities or variables when influenced by changes in each other's state or actions.

Collusion

Agreement among firms to avoid various competitive practices, particularly price reductions. It may involve either formal agreements or merely tacit recognition that competitive practices will be self-defeating in the long run. Tacit collusion is difficult to detect. In the United States, antitrust laws prohibit collusion and conspiracies to restrain trade.