In the foreign exchange market, the exchange rate is volatile because the
A) factors that influence the supply of dollars also influence the demand for dollars.
B) demand for dollars changes more frequently than the supply of dollars.
C) both the demand curve for dollars and the supply curve of dollars are very flat.
D) supply of dollars changes more frequently than the demand for dollars.
E) None of the above is related to the volatility of the exchange rate.
A
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What are the results of a contractionary monetary policy in an open economy with floating exchange rates and internationally mobile capital?
a. The dollar appreciates, which leads to an increase in exports and a decrease in imports. The country therefore winds up with a deficit in capital and a surplus in its balance of trade. b. The dollar appreciates, which attracts foreign capital. Also, imports rise and exports decline. The country therefore winds up with a surplus in capital and an increase in its trade deficit. c. The dollar depreciates, which attracts foreign capital. Also, exports rise and imports decline. The country therefore winds up with a deficit in capital and a surplus in its balance of trade. d. The dollar depreciates, which leads to a larger real GDP and a larger trade surplus.
What is the source of market power for a monopolistically competitive firm?