Fixing an Exchange Rate Between Two Countries Makes the Most

question 33

Multiple Choice

Fixing an exchange rate between two countries makes the most sense when:

• A)The countries macroeconomic fluctuations are positively correlated
• B)The countries macroeconomic fluctuations are negatively correlated
• C)Both countries are similar in population
• D)One country has a lot of international reserves and the other doesn't

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Definitions:

Deadweight Loss

A loss of economic efficiency that occurs when the optimal level of supply and demand is not achieved.

Supply Elasticities

Measures the responsiveness of the quantity supplied of a good to a change in its price.

Excise Tax

A tax imposed on specific goods, services, or transactions, often used to discourage consumption of certain products or to raise government revenue.

Black Markets

Illegal trade markets that arise when goods or services are traded at prices or in quantities that violate government regulations or laws.