Proponents of the Fixed Exchange Rate System Argue That

question 106

Multiple Choice

Proponents of the fixed exchange rate system argue that

• A)flexible exchange rates may promote international trade, but under a fixed exchange rate system at least we know what the rates will be from day to day.
• B)under a flexible exchange rate system, there is too great a chance that the exchange rate will diverge from the equilibrium exchange rate.
• C)under a flexible exchange rate system, there is no way of knowing what the exchange rate is at any particular point in time.
• D)under a fixed exchange rate system, there would be only one currency.
• E)flexible exchange rates stifle international trade, while fixed exchange rates promote international trade.

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Definitions:

Marginal Cost

The augmentation in total expenditure resulting from the manufacture of one more unit of a product or service.

Price

Price refers to the amount of money expected, required, or given in payment for something, representing the value exchange between buyer and seller in a market.

Kinked Demand

A demand curve that has a distinct bend or "kink" at a certain price level, reflecting different elasticity above and below that price.

Marginal Cost

The increase in cost resulting from the production of an extra unit of a good or service.