13. People or firms use one currency to purchase another currency at the ___. A.
ID: 1102076 • Letter: 1
Question
13. People or firms use one currency to purchase another currency at the ___. A. international currency exchange B. foreign exchange market C. foreign currency exchange D. international parity market
17. If government policy allows a country's currency to be determined in the exchange rate market, then that currency will be subject to A. a hard peg policy. B. purchasing power parity. C. depreciation. D. a floating exchange rate.
19. Which of the following is an example of a pegged currency?
A. U.S. dollar B. British pound C. Euro D. Chinese yuan
22. Using the term "spillover" is a less formal means of describing
A. an externality. B. social costs. C. private costs. D. market failure.
32. Steve and Craig have been shipwrecked on a deserted island in the South Pacific. Their economic activity consists of either gathering pineapples or fishing. We know Steve can catch four fish in one hour or harvest two baskets of pineapples. In the same time Craig can reel in two fish or harvest two baskets of pineapples.
Assume Craig and Steve both operate on straight-line production possibilities curves. What is Steve's opportunity cost of producing a basket of pineapples? Of a producing a fish? What is Craig's opportunity cost of producing a basket of pineapples? Of a producing a fish?
Explanation / Answer
13)
B. foreign exchange market
Reason: Definition gives us the reason
The market in which participants are able to buy, sell, exchange and speculate on currencies. Foreign exchange markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors. The forex market is considered to be the largest financial market in the world.
17)
D. a floating exchange rate.
Reason:-
Exchange Rate system in which rates of each national currency are determined by interaction of market supply and demand. Factors affecting demand and supply of each currency include a country's Current Account balance, the general strength of its economy, its rate of Inflation and interest rates as compared against other nations.
19)
D. Chinese yuan
Reason:-
Definition: When a country pegs its currency to the dollar, this means it intends to control the value of its currency so that it rises and falls as the dollar does. To do this, they have to use a fixedexchange rate. Usually, a country will peg its currency to a certain dollar range. The dollar's value changes to much on a daily basis to do otherwise.
A great example of this is China, which pegs its currency (the yuan) to the dollar to maintain competitive pricing.
22)
A. an externality.
Reason:- From wikipedia page
History of the concept
Two British economists are credited with having initiated the formal study of externalities. Henry Sidgwick (1838-1900) is credited with first articulating, and Arthur C. Pigou (1877-1959) is credited with formalizing, the concept of externalities, or spillover effects.
32)
Well, since I don't have a camera so I am explaining you how to do it:-
For Steve
--->First draw the production possibility curve by drawing a straight line between points [ (0,2) and (4,0)].
Steve opportunity cost for producing a basket of pineapple
Well this can be found by putting y=1, in the equation x +2*y -4=0.
where x=number of fishes caught and y= number of pineapple basket.
putting y=1, we get x=2.
hence opportunity cost of producing 1 basket of pineapple= cathching 2 fish less.
Steve opportunity cost Of a producing a fish
Well, this can be found by putting x=1 in the above equation( x +2*y-4).
putting x=1, we get:-
y=1.5
hence opportunity cost of catching 1 fish is producing 1/2 (2-1.5) basket of pineapple less
For Craig:-
Similarly for Craig we find the straight line production possibility frontier graph line equation between points [ (0,2) and (2,0) ].
The equation found is x+ y -2 =0.
Craig's opportunity cost of producing a basket of pineapples
Well this can be found by putting y=1 in the equation x +y -2=0.
Putting y=1, we get x=1.
hence opportunity cost of producing 1 basket of pineapple is catching 1 fish less .
Craig's opportunity cost Of a producing a fish?
Thus can be found by putting x=1 in the equation x +y-2=0.
Putting x=1, we get:-
y=1.
hence Craig's opportunity cost Of a producing a fish is producing one basket of pineapple less.
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