If for Some Reason Americans Desired to Decrease Their Purchases

question 127

Multiple Choice

If for some reason Americans desired to decrease their purchases of foreign assets,then other things the same

• A)both the real exchange rate and the quantity of dollars exchanged in the market for foreign-currency exchange would fall.
• B)both the real exchange rate and the quantity of dollars exchanged in the market for foreign-currency would rise.
• C)the real exchange rate would rise and the quantity of dollars exchanged in the market for foreign-currency would fall.
• D)the real exchange rate would fall and the quantity of dollars exchanged in the market for foreign-currency would rise.

---

Definitions:

Risk Aversion

The preference to avoid uncertainty and risky situations, often influencing economic and financial decisions.

Adverse Selection

The case in which an individual knows more about the way things are than other people do. Adverse selection problems can lead to market problems: private information leads buyers to expect hidden problems in items offered for sale, leading to low prices and the best items being kept off the market.

Moral Hazard

The situation that can exist when an individual knows more about his or her own actions than other people do. This leads to a distortion of incentives to take care or to expend effort when someone else bears the costs of the lack of care or effort.

Risk Aversion

The tendency to prefer certainty over uncertainty, avoiding risk in decision-making or preferring safer investments.