QUESTION 5 Which of the following exchange rate arrangements is not a fixed rate
ID: 1119215 • Letter: Q
Question
QUESTION 5 Which of the following exchange rate arrangements is not a fixed rate? a. Crawling band b. Crawling peg C. Managed float O d. Currency board QUESTION6 $3 $2 Quantity of E Refer to the above graph, which shows a change in the demand for pounds from DD to D'D. Under a system of fixed exchange rates, the: a. Price of a pound will increase to O b. Shortage equal to ab would be met using international monetary reserves c. Price of a dollar will increase to 3 pounds d. Payment deficit will cause changes in domestic price and income levels, shifting demand to the left, supply to the $3 right, and reestablishing the original exchange rateExplanation / Answer
(Question 5) Option (c)
In managed float, domestic currency is allowed to freely float, but to keep it within a limit, government engages in sale and purchase of foreign currency to ensure the exchange rate does not go beyond control.
(Question 6) Option (b)
When exchange rate is $2, a rightward shift from D to D' will lead to a shortage equal to horizontal distance ab, and to keep exchange rate unchanged, government will use foreign currency reserves.