Assume That the Fixed Exchange Rate System of 100 Pesos

question 47

Multiple Choice

Assume that the fixed exchange rate system of 100 pesos = 1 dollar is above the equilibrium exchange rate of 90 pesos= 1 dollar in a flexible exchange rate system.Then the dollar would be

• A)undervalued and the peso would be overvalued.
• B)overvalued and the peso would be undervalued.
• C)revalued.
• D)depreciated and the peso would be appreciated.

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Definitions:

Store of Value

An asset, commodity, or currency that can be saved, retrieved, and exchanged in the future without significantly losing value.

Holding Wealth

The act of owning, managing, and retaining assets or capital with the goal of increasing financial security and potential for future income.

Double Coincidence of Wants

A situation in barter economies where two parties each hold an item the other wants, allowing them to exchange goods directly.

Specialization of Labor

A process in which individuals or groups of workers concentrate on specific tasks, aimed at increasing efficiency and output.