What is a flexible exchange rate and how does it work?
What will be an ideal response?
A flexible exchange rate policy is an exchange rate that is determined by demand and supply with no direct intervention in the foreign exchange market by the central bank. In this arrangement, the forces of supply and demand with no direct central bank intervention are the only factors that influence the exchange rate.
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If U.S. citizens decide to purchase more foreign assets at each interest rate, the U.S. real interest rate
a. increases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow decreases. b. increases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases. c. decreases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow decreases. d. decreases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow increases.
A actor receives a $100,000 payment from a producer to prevent him from revealing a scandal. This is an example of ______.
a. leisure b. nonmarket transactions c. externalities d. the underground economy