Author Question: If a country sets a pegged exchange rate that is below the equilibrium exchange rate, how can the ... (Read 156 times)

pepyto · **on:** Jun 29, 2018

If a country sets a pegged exchange rate that is below the equilibrium exchange rate, how can the country maintain the peg?

A) by selling surplus domestic currency at the pegged rate
B) by purchasing surplus domestic currency at the pegged rate
C) by decreasing the pegged exchange rate
D) by purchasing surplus domestic currency at the equilibrium exchange rate

Question 2

What does a budget constraint represent? How do budget constraints explain the trade-offs that consumers face?

What will be an ideal response?

AmberC1996 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

A

Answer to Question 2

A budget constraint is an equation representing the goods or activities that a consumer can choose given her limited budget. Tradeoffs arise when some benefits must be given up in order to gain others. In other words, a tradeoff occurs when you give one thing up to get something else. Since a budget constraint shows the set of things that you can choose to do or buy with a fixed amount of money, it also shows that if you choose to buy more of one good, you will have to buy less of another. Therefore, a budget constraint equation implies that a consumer faces a tradeoff.