If,under a Fixed Exchange Rate System,the Dollar Price of a Mexican

question 110

Multiple Choice

If,under a fixed exchange rate system,the dollar price of a Mexican peso is above its equilibrium level,then the

• A) dollar is undervalued.
• B) peso is undervalued.
• C) dollar has appreciated.
• D) peso has depreciated.

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Definitions:

Income Effect

The change in an individual's consumption choices resulting from a change in their real income.

Substitution Effect

The economic understanding that as prices rise (or incomes decrease), consumers will replace more expensive items with less costly alternatives.

Inferior Good

A type of good for which demand decreases when the income of the consumer increases, inversely related to normal goods.

Income Effect

The change in an individual's or economy's income and how that change will affect the quantity demanded of a good or service.