Economics does not study correct or incorrect behaviors but ...

[cdr_15]

Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.
 
  A) emotionally B) equitably C) selfishly D) rationally

Question 2

In 1991, Argentina decided to peg its currency (the Argentinean peso) to the U.S. dollar.
 
  To maintain the peg, Argentina had to purchase surplus pesos on the foreign exchange market, depleting its reserves of dollars to such an extent that it eventually had to abandon the peg. Show graphically what this implies about the peg relative to the equilibrium exchange rate in the market for the Argentinean peso.

[FergA]

Answer to Question 1

D

Answer to Question 2

If Argentina had to purchase surplus pesos on the foreign exchange market, that implies that the pegged exchange rate was above the market equilibrium exchange rate, as shown below.