Foreign Exchange Market Intervention Is Most Likely to Stabilize Exchange

question 90

Multiple Choice

Foreign exchange market intervention is most likely to stabilize exchange rates if:

• A)exchange rate changes reflect changes in long-term economic fundamentals.
• B)exchange rate changes reflect short-term fluctuations around the long-term equilibrium exchange rate.
• C)governments overestimate the long-term equilibrium exchange rate.
• D)governments underestimate the long-term equilibrium exchange rate.

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Definitions:

Production Incentives

Motivational factors or rewards designed to encourage increased productivity or output by workers or companies.

Marginal Productivity Theory

An economic theory that explains income distribution based on the productivity of the factor inputs in producing goods and services.

Income Distribution

The way in which a nation’s total income is spread among its population, affecting economic inequality.

Output Value

The total value of all goods or services produced by a firm or economy, often measured in terms of monetary value.