Assuming the Free Flow of Capital Across Borders, If Country

question 65

Multiple Choice

Assuming the free flow of capital across borders, if country A wants to fix its exchange rate with country B, then:

• A) country A's inflation rate will have to match country B's.
• B) country A's monetary policy must be conducted so the inflation rate in country A matches the inflation rate in country B.
• C) country A's monetary policy will not be able to be used to address domestic issues.
• D) all of the answers given are correct.

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Definitions:

Shortage

A situation where the demand for a product or service exceeds the supply available.

Surplus

A situation where the quantity of a good or service supplied exceeds the quantity demanded at a given price.

Equilibrium Quantity

The amount of products or services available and sought after at the equilibrium price, where the supply meets the demand.

Price Floor

A government or regulatory-imposed minimum price for goods or services, intended to prevent prices from dropping too low.