What Two Key Factors Trigger Speculative Attacks Leading to Currency

question 21

Essay

What two key factors trigger speculative attacks leading to currency crises in emerging market countries?

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Definitions:

Long-Run Equilibrium

A state in an economy or market where all factors of production are fully employed and economic forces are in balance, persisting over a long period.

MR = MC

A condition in economics where marginal revenue equals marginal cost; it's the optimal production point for firms maximizing their profit.

Monopolistically Competitive

Refers to a market structure where many companies sell products that are similar but not identical, allowing for some degree of market power and product differentiation.

Positive Economic Profits

Situations where a firm's total revenues exceed all its costs, including opportunity costs, indicating that it is earning more than the minimum required to stay in business.