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If a Government Fixes the Exchange Rate So as to Generate

question 240

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If a government fixes the exchange rate so as to generate a surplus of the domestic currency,the exchange rate (Canadian dollars per unit of the other currency) will tend to _____.To maintain the fixed exchange rate,the government must _____ the domestic currency.


Definitions:

Long-run Equilibrium

Long-run equilibrium is the condition in which all factors of production and inputs in a market are fully adjusted, prices have stabilized, and there is no tendency for change.

Long-run Phillips Curve

A graphical representation suggesting that in the long run, there is no trade-off between inflation and unemployment, as the economy adjusts to natural levels of employment.

Labor Force

The total number of workers, including both the employed and the unemployed

Expected Inflation

The rate at which general prices of goods and services are anticipated to rise over a specific period.

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