A Speculative Attack on a Country with a Fixed Exchange

question 89

Multiple Choice

A speculative attack on a country with a fixed exchange rate occurs when:

• A)Financial market participants believe the government will have to devalue its currency
• B)Financial market participants believe the government will have to sell off some of their international reserves
• C)Financial market participants believe the currency is undervalued
• D)The country is running out of gold reserves

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Definitions:

Few Substitutes

A market condition where there are limited alternatives for a product, giving the product a higher degree of market power and potentially leading to higher prices.

Long Run Equilibrium

A state where all inputs can be adjusted by firms and all prices can fully adapt, leading to resource allocation where supply equals demand.

Industry

Refers to a specific sector of the economy that produces and distributes goods or services, such as the technology or pharmaceutical industry.

Short Run

A period in economic analysis during which some factors of production are fixed, allowing only some inputs or operations to be adjusted.