Author Question: Are black markets for foreign currencies more likely to occur in countries with an overvalued ... (Read 27 times)

abarnes · **on:** Jun 30, 2018

Are black markets for foreign currencies more likely to occur in countries with an overvalued currency or with an undervalued currency? Why?

What will be an ideal response?

Question 2

Downward wage rigidity:

A) leads to frictionless labor markets.
B) causes the wage to be above the market clearing wage.
C) helps lower unemployment.
D) is common only in industries with strong labor unions.

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

Answer to Question 1

Black markets for foreign currencies are likely to occur in countries with an overvalued currency than with an undervalued currency. This is because, to defend an overvalued currency, the government has to sell the foreign currency and buy the domestic currency. Since selling the foreign currency provides the government with opportunities to make profits, black markets are more likely to come into existence. The exchange rates in black markets are less favorable to sellers of domestic currency than in a flexible exchange rate.

Answer to Question 2

B