What will happen to a country that fixes the price of foreign exchange below equilibrium?
If foreign exchange is priced below equilibrium, then the domestic currency is overvalued. When the price of foreign exchange is fixed below equilibrium, the quantity of foreign exchange demanded by domestic citizens will exceed that supplied by foreigners. A shortage of foreign exchange will result, and a black market will develop where domestic citizens attempt to buy foreign currency with which to conduct foreign exchange. The fixing of exchange rates will limit the citizens' ability to gain from trade.
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What did economists Robert Jensen and Nolan Miller determine must be true for a good to be a Giffen good, where the income effect is larger than its substitution effect?
What will be an ideal response?
Consider an indifference curve drawn for movies and pizzas. Which of the following statements about this indifference curve is false?
A) As an individual consumes more pizzas, the amount of movies the consumer is willing to give up for an additional pizza increases. B) If the individual consumes more pizzas, the amount of movies consumed must fall if the consumer is to stay on the same indifference curve. C) The indifference curve will be convex to the origin, that is, bowed in toward the origin. D) If the consumer purchases more of movies and pizzas, total utility will increase, but the consumer will be on a new indifference curve that is farther from the origin than the original indifference curve.