Refer to Figure 19-8. The equilibrium exchange rate is originally at A, $1.25/euro. Suppose the European Central Bank pegs its currency at $1.00/euro
Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D2. If the European Central Bank abandons the peg, the equilibrium exchange rate would be
A) $1.00/euro. B) $1.25/euro. C) $1.50/euro. D) $1.75/euro.
C
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Cartels persist despite laws against them because
A) international cartels are legal. B) it is impossible to convict firms. C) of the Prisoners' Dilemma issue. D) All of the above.
When two countries trade with one another, it is most likely because
a. the wealthy people in each of the two countries are able to benefit, through trade, by taking advantage of other people who are poor. b. some people involved in the trade do not understand that one of the two countries will become worse-off because of the trade. c. the opportunity costs of producing various goods are identical for the two countries. d. the two countries wish to take advantage of the principle of comparative advantage.