Suppose That Econland Has a fiXed Exchange-Rate System

question 242

Multiple Choice

Suppose that Econland has a fixed exchange-rate system. Econland's government (its central bank) will exchange as much local currency (say pesos) for foreign currency (say dollars) and as much
Foreign currency (say dollars) for local currency (say pesos) as is necessary to maintain the peg.
Which of the following statements is not true?

• A) Satisfying requests by people to get local pesos in exchange for foreign dollars is easy for the central bank to do.
• B) The central bank has a restricted capacity to satisfy requests by people to get foreign dollars in exchange for local pesos.
• C) Being the central bank, it has an equal capacity to satisfy requests to exchange dollars for pesos, and pesos for dollars.
• D) The central bank needs to stockpile some foreign-exchange reserves in order to maintain the peg.

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Definitions:

Opportunity Costs

The value of the next best alternative foregone as the result of making a decision.

Explicit Cost

The direct, out-of-pocket payment made by businesses for the use of resources.

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A professional who creates visual content to communicate messages through digital and printed mediums.

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The difference between total revenues and total costs, including both explicit and implicit costs, measuring the true profitability of an enterprise.