Under a floating exchange rate regime, a balance of payments deficit prompts ?
Show answer Hide answer
Answer: A. The external value of the currency would tend to fall
Explanation
A balance of payments deficit under floating rates creates an excess supply of domestic currency. Sellers flood foreign exchange markets with the domestic currency to cover international debts. Excess supply drives down the external market value of the currency. Floating exchange rates adjust freely based on private market supply and demand forces. A balance of payments deficit means total foreign exchange payments exceed receipts. Exchange rate depreciation helps restore trade balance equilibrium over time.
Central banks under floating regimes do not intervene to peg currency values. Traders adjust exchange rate expectations rapidly upon observing trade deficit reports. Depreciating currencies make domestic exports cheaper and imports more expensive. Option B describes currency appreciation which occurs during balance of payments surpluses. Option C confuses trade withdrawal definitions with currency market disequilibrium. Option D describes demand growth rather than external currency valuation pressures.
Related questions
Q1. An excessive real wage in the labor market leads to ?
Show answer Hide answer
Answer: B. The quantity demanded of labour equals the quantity supplied
An excessive real wage causes unemployment, but the market tends to adjust; the provided key incorrectly matches an economic definition.
Q2. When the long-run market supply curve for an item is perfectly elastic, surging demand leads in the long run to ?
Show answer Hide answer
Answer: A. an increase in the number of firms in the market but no increase in the price of the good
A perfectly elastic long-run supply curve means industry production costs remain constant regardless of output. Surging demand attracts new firms into the market seeking profitable business opportunities. Because input c...
Q3. An increase in the relative price (MRT) of good S causes the price line to ?
Show answer Hide answer
Answer: C. Become steeper
An increase in the relative price of good S raises its opportunity cost. The price line pivots inward on the axis corresponding to good S. This geometric adjustment causes the budget constraint to become steeper overall....
Q4. When marginal revenue remains positive ?
Show answer Hide answer
Answer: D. Selling another unit will increase average revenue
As long as marginal revenue is positive, producing and selling an additional unit adds to total revenue.
Q5. If the total product of two workers is 80 and the total product of 3 workers is 90 then the average product of the third worker is ________ and the marginal product of the third worker is _________?
Show answer Hide answer
Answer: D. 30; 10
Average product is calculated as total product divided by the number of workers. Marginal product is calculated as the change in total product when adding a worker. Ninety divided by three gives thirty, and ninety minus...
Q6. Operating a production facility with excess capacity suggests the firm's supply curve is ?
Show answer Hide answer
Answer: D. price elastic
Excess capacity means a firm operates on the downward-sloping portion of its average total cost curve. In this range, increasing production lowers average costs, making output highly responsive to price changes. This ope...