On January 1, 2001, El Salvador "Dollarized" Its Economy

question 33

Multiple Choice

On January 1, 2001, El Salvador "dollarized" its economy.The U.S.dollar circulated throughout the country along with the Salvadoran colon for the first year.By the end of 2002 the official currency circulating in this economy was the U.S.dollar.El Salvador abandoned its own currency and adopted the currency of the United States because:

• A)with dollars, monetary policy would be more effective at offsetting demand shocks in the economy.
• B)the government would no longer be able to finance deficits by printing money, and inflation would be under control.
• C)the government would still be able to finance deficits by printing U.S.dollars, and inflation would be under control.
• D)the government would still be able to run deficits by printing money.

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Definitions:

Profit Maximizing

refers to a firm's goal of achieving the highest possible profit, where marginal costs equal marginal revenue, guiding pricing and production decisions.

Perfectly Competitive

A market configuration where numerous small businesses are present, with each selling identical items, coupled with the absence of entry or exit hurdles and complete transparency of information among consumers and vendors.

Optimal Output

The level of production that results in the highest possible profit for a firm, determined by the point where marginal cost equals marginal revenue.

Short-Run Costs

Expenses that vary directly with the level of output in the short term, where at least one input is fixed.