Assume That the Fixed Exchange Rate System of 1

question 17

Multiple Choice

Assume that the fixed exchange rate system of 1.1 euros = 1 dollar is below the equilibrium exchange rate of 1.3 euros = 1 dollar in a flexible exchange rate system.Then,at the fixed exchange rate,the dollar would be

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

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Definitions:

Bags Of Pretzels

Not a standard economic key term, often used as an example in contextual scenarios about goods.

Market

A market is any arrangement that allows buyers and sellers to exchange goods, services, and information. It determines the price and allocation of resources through the interactions of supply and demand.

Normal Good

a good for which demand increases when consumer income rises, and falls when consumer income decreases.

Equilibrium Price

The market price at which the quantity demanded of a good equals the quantity supplied, leading to market balance.