The "Trilemma Problem" Implies That Countries That Opt for

question 65

Multiple Choice

The "trilemma problem" implies that countries that opt for

• A)fixed exchange rates may lose control of domestic monetary policy.
• B)flexible exchange rates may lose control of domestic monetary policy.
• C)fixed exchange rates may experience exchange rates that "overshoot" when there are large capital inflows.
• D)flexible exchange rates may experience exchange rates that "overshoot" when there are large capital inflows.

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Definitions:

MRP

Marginal Revenue Product, the additional revenue generated by employing one more unit of a resource, such as labor or capital.

Capital

Financial assets or the financial value of assets, such as funds held in deposit accounts, as well as the physical factors of production including machinery, buildings, and land.

Labor

The body of persons engaged in physical or mental work, especially to produce goods or provide services for wages.

Wage Rate

The amount of compensation paid to an employee by an employer in exchange for work performed, typically expressed on an hourly, daily, or piecework basis.