Author Question: A reserve currency is a currency that is: a. used exclusively to settle domestic debts. b. ... (Read 36 times)

codyclark · **on:** Jun 30, 2018

A reserve currency is a currency that is:
a. used exclusively to settle domestic debts.
b. specifically designed for use by commercial banks to settle accounts.
c. held only by bureaucrats.
d. used to settle international debts by private corporations.
e. held by governments to facilitate foreign exchange market interventions.

Question 2

What benefits are to be gained from countries producing according to the law of comparative advantage? What if a country is absolutely more productive in all goods?

macagn · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

e

Answer to Question 2

When countries produce according to the law of comparative advantage, and then trade, the consumption possibilities expand for all countries involved. This is because producing goods for which a country has a comparative advantage means that goods are produced at the lowest relative opportunity cost, thus freeing resources for the production of more goods. Even if a country has an absolute advantage, it will still gain from trade, because it is comparative, not absolute, advantage that determines which countries should produce which goods.