Which of the following statements is true of a flexible exchange rate system?
A) Market forces tend to undervalue a currency over time.
B) Market forces tend to overvalue a currency over time.
C) Market forces do not affect exchange rates between different currencies.
D) Market forces tend to push the exchange rate of a currency to market clearing levels over time.
D
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The forward exchange rate is relevant to transactions ________
A) that require an immediate transfer of funds B) that require a future transfer of funds C) that involve a transfer of funds within a corporate entity D) crossing state lines
Consider a consumer with preferences for consumption of a composite good (C) and leisure (L) given by the following utility function:
U(C,L) = 2C1/2 + L Denote the consumer's wage rate by w and total time available for labor and leisure is normalized to one. The price of consumption is one. Denote the amount of labor supplied as N, so that N + L = 1. The consumer also earns non-labor income ("allowance") of 0. a. Write out the budget constraint determining feasible allocations of leisure and consumption. b. Compute the optimal bundle of leisure and optimal bundle of consumption. c. Derive the consumer's labor supply function: N*(w, ). d. Determine the effect of increasing non-labor income on the supply of labor (that is, compute the relevant partial derivative). e. How does non-labor income affect the consumption of the composite good, C? f. Compute the effects of an increase in wage on consumption and labor supply. Is leisure a normal good?