The Currency Used in the Duchy of Saxony Is the Ducet.The

question 89

Multiple Choice

The currency used in the Duchy of Saxony is the ducet.The demand for Saxonian ducets in the foreign exchange market equals 8,000 - 2,000e and the supply of ducets in the foreign exchange market equals 4,500 + 3,000e,where e is the nominal exchange rate expressed in dollars per ducet.If the ducet is fixed at $0.50 per ducet,then the ducet is __________ and the Duchy of Saxony has a balance-of-payments ___________.

• A) overvalued;surplus of 750 ducets
• B) overvalued;deficit of 750 ducets
• C) overvalued;deficit of $750
• D) undervalued;surplus of 1,000 ducets
• E) undervalued;deficit of 1,000 ducets

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Definitions:

Warranties

Guarantees issued to the purchaser of a product by its manufacturer or seller, promising repair or replacement within a certain period if necessary.

Adverse Selection

A situation where there is an imbalance in information that results in high-risk parties being more likely to engage in transactions than low-risk parties, often observed in insurance markets.

Good Quality

The degree to which a product or service meets or exceeds customer expectations.

Moral Hazard

A situation where one party engages in risky behavior knowing that it is protected against the consequences, often due to asymmetric information.