Assume That There Is an Unexpected Increase in the Demand

question 4

Multiple Choice

Assume that there is an unexpected increase in the demand for U.S.dollars in Switzerland.If the foreign currency price of the U.S.dollar is fixed, the U.S.Federal Reserve must intervene in the foreign exchange market such that:

• A)the supply of U.S.dollars increases.
• B)the U.S.demand for the Swiss franc falls.
• C)the supply of U.S.dollars decreases.
• D)Swiss imports from the United States are reduced.
• E)the Swiss currency is devalued.

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Definitions:

Substitution Effect

The change in consumption patterns due to a change in relative prices of goods, leading individuals to substitute cheaper goods for more expensive ones.

Compensated Demand Function

A demand function that adjusts for changes in income to show how quantities demanded by consumers change in response to a price change while keeping utility constant.

Adequately Paid

Compensation that meets or exceeds the value of the work performed or the qualifications of the individual.

Utility Function

This describes a formula used in economics to quantify the happiness or satisfaction obtained by a consumer from consuming goods and services.