Refer to Figure 19-4. The equilibrium exchange rate is at A, $3/pound. Suppose the British government pegs its currency at $4/pound. Speculators expect that the value of the pound will drop and this shifts the demand curve for pounds to D2
After the shift,
A) there is a surplus of pounds equal to 400 million.
B) there is a shortage of pounds equal to 600 million.
C) there is a shortage of pounds equal to 200 million.
D) there is a surplus of pounds equal to 600 million.
E) there is a shortage of pounds equal to 400 million.
D
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Moral hazard is
A) the tendency for people to enter into agreements in which they can use their private information to their own advantage and to the disadvantage of the less informed party. B) when one of the parties to an agreement has an incentive after the agreement is made to act in a manner that brings additional benefits to himself or herself at the expense of the other party. C) a situation in which only bad quality items are bought and sold. D) an action taken outside a market that conveys information that can be used by that market.
In Figure 16-2 above, the line BF is
A) the MPK less the user cost of capital. B) the user cost of capital less MPK. C) the MPK. D) the demarcation line for profitability.