A Potential Limitation of Freely Floating Exchange Rates Is That

question 63

Multiple Choice

A potential limitation of freely floating exchange rates is that

• A) countries require a larger amount of international reserves than otherwise.
• B) countries are unable to initiate economic policies to combat unemployment.
• C) exchange rates may experience wide and frequent fluctuations.
• D) demand tends to be highly sensitive to price movements.

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Definitions:

Comparative Advantage

The ability of an entity to produce a good or service at a lower opportunity cost than another entity, leading to more efficient trade.

Radios

Devices used for the wireless transmission and reception of sound through electromagnetic waves.

Televisions

Electronic devices designed for the reception and display of audiovisual content through terrestrial, satellite, cable, or internet sources.

Comparative Advantage

The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than competitors, leading to specialized trade benefits.