Suppose Foreign Exchange Markets Anticipate a Devaluation for Country A Assume

question 48

Multiple Choice

Suppose foreign exchange markets anticipate a devaluation for country A.Further assume that policy makers in country A will continue to fix its nominal exchange rate.In order to peg the currency at its original level,which of the following must occur?

• A)increase the domestic interest rate
• B)increase the domestic price level
• C)convince trading partners to raise their interest rates
• D)all of the above
• E) none of the above

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Definitions:

Marginal Returns

Marginal Returns refer to the additional output or benefit received from increasing one unit of a particular input while keeping other inputs constant.

Marginal Cost

The incremental cost associated with the production of an extra unit of a product or service.

Marginal Cost Curve

A curve that displays the additional cost associated with producing one more unit of output, typically showing how marginal cost changes with changes in production volume.

Total Cost Curve

A graph that shows the total cost incurred by a firm in the production of goods or services at different levels of output.