Suppose Brazil Has a Fixed Exchange Rate, and It Faces

question 54

Multiple Choice

Suppose Brazil has a fixed exchange rate, and it faces domestic recession and a trade surplus.Assuming it desires overall balance, if Brazil revalues its currency, other things equal one would expect which of the following to occur?

• A) the recession to become less severe and the trade surplus to become less severe
• B) the recession to become more severe and the trade surplus to become more severe
• C) the recession to become more severe and the trade surplus to become less severe
• D) the recession to become less severe and the trade surplus to become more severe

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Definitions:

Productive Efficiency

A situation in which an economy or production system cannot produce more of one good without reducing the output of another good, indicating optimal production resource usage.

Capital Goods

Assets owned by companies for an extended period, instrumental in manufacturing products and providing services, including items like equipment, machinery, and buildings.

Consumer Goods

Products intended for final use by consumers rather than further manufacturing or processing.

Future Growth Rate

An estimate of how fast an economy, company, or investment is expected to grow in the future.