When a Country Fixes the Price of Foreign Exchange (In

question 96

Multiple Choice

When a country fixes the price of foreign exchange (in terms of the domestic currency) below equilibrium, which of the following will result?

• A) A black market will develop for foreign exchange.
• B) Residents of that country can buy as much foreign currency as they want.
• C) There will be a surplus of foreign exchange.
• D) A depreciation of the currency will restore equilibrium in the foreign exchange market.

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Definitions:

Total Revenues

The entire sum of money earned from selling goods or services prior to deducting any costs.

Fixed Costs

Expenses that do not change in relation to the level of goods or services produced by a business, such as rent, salaries, and loan payments.

Off Season

A period of the year when a particular activity, typically related to tourism or agriculture, is at its lowest level of demand.

Average Variable Cost

The variable cost per unit of output, calculated by dividing total variable costs by the quantity of output produced.