Suppose the Country That Pegs Its Currency Has an Overvalued

question 55

Multiple Choice

Suppose the country that pegs its currency has an overvalued real exchange rate and that output is currently above the natural level of output.Which of the following will occur as the economy adjusts to this situation?

• A)P will decrease over time until Y = Yn.
• B)a reduction in the pegged value of the domestic currency will cause a leftward shift of the AD curve.
• C)net exports will increase as the economy adjusts to this situation.
• D)domestic goods will become less competitive as the economy adjusts by itself.
• E)none of the above

---

Definitions:

Section 402A

Refers to a specific provision within the Restatement (Second) of Torts that deals with the liability of manufacturers and sellers for harm caused by defective products.

Fitness for a Particular Purpose

A warranty that a product will meet the specific needs or criteria outlined by the buyer at the time of purchase.

Merchantability

Refers to the guarantee that a product sold meets reasonable expectations of quality and usability for its intended purpose.

Implied Warranties

Legal guarantees that ensure a product meets certain minimum standards of quality and functionality, even if not expressly stated.