Assume That Citizens of Foreign Countries Exchange Their Home Currencies

question 85

Essay

Assume that citizens of foreign countries exchange their home currencies for American dollars and keep the cash hidden in their homes as a means of savings. Explain what happens to the effective size of the money supply.

---

Definitions:

Price Floor

A government or regulatory imposed minimum price for goods or services, intended to prevent prices from falling too low.

Surplus

An excess of income or assets over expenditure or liabilities in a given period, typically referring to profit or a budgetary surplus.

Shortage

A market condition in which the demand for a product exceeds its supply at a particular price.

Market Price

The actual selling price of a good or service in the marketplace, determined by the forces of supply and demand.