A Balance of Payments Crises Under Fixed Exchange Rates Occurs

question 73

Multiple Choice

A balance of payments crises under fixed exchange rates occurs when

• A)a country runs out of foreign reserves.
• B)a country is in a liquidity trap.
• C)exports and imports expand beyond some point.
• D)marginal returns on foreign exchange investments approach zero.
• E)forward currency markets undergo high volatility.

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Definitions:

Increasing Opportunity Costs

The economic concept that as production of a good increases, the opportunity cost of producing an additional unit of that good also increases.

Production Possibilities Schedule

A graphical representation that shows the different combinations of two goods or services that can be produced within a given time period, provided that available resources and technology are static.

Consumer Goods

Goods that are produced for direct consumption by the end user.

Capital Goods

Long-term assets purchased by businesses to produce goods and services.