What Is a Floating Exchange Rate

question 26

Multiple Choice

What is a floating exchange rate?

• A) An exchange rate that is susceptible to financial bubbles known as floats.
• B) An exchange rate that is determined by a floating mechanism.
• C) An exchange rate to which others are pegged.
• D) An exchange rate that is determined by market supply and demand.
• E) An exchange rate that is fixed but can vary a little.

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Definitions:

Rational Consumer

An assumption in economics that consumers aim to maximize their utility or satisfaction from consumption choices, given their budget constraints.

Cobb-Douglas Utility Function

A specific form of utility function used in economics to represent preferences, where utility is derived from a combination of goods, typically modeled with constants representing the elasticity of substitution between those goods.

Real Interest Rate

The interest rate that has been adjusted to remove the effects of inflation, reflecting the real cost of borrowing.

Consumption

The action of using up a resource or goods, often referring to the rate at which consumers purchase and use products and services.