When Equilibrium Is Present in the Foreign Exchange Market, Which

question 153

Multiple Choice

When equilibrium is present in the foreign exchange market, which of the following will tend to be in balance?

• A) the value of goods exported and the value of goods imported
• B) real and nominal interest rates
• C) imports plus capital outflow and exports plus capital inflow
• D) tax revenues and government expenditures

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Definitions:

Rational

Describes a decision maker who chooses the available option that leads to the outcome he or she most prefers.

Diminishing Marginal Utility

The principle stating that as a person consumes more units of a good, the satisfaction (utility) gained from consuming each additional unit decreases.

Giffin Good

A type of good for which demand increases as the price increases, contradicting the basic law of demand due to the income effect.

Income Effect

The relationship between changing income levels in an economy or for individuals and the subsequent effect on goods and services demand.