--%>
Assignment Help - homework help

Equilibrium market rate & Undervalued currency

Question:

a. In the short-run, it is easier for a country to maintain a peg that undervalues a currency (relative to the equilibrium market rate) than it is to maintain a peg that overvalues the currency (relative to the equilibrium market rate).
Explain Why?

Answer:

An undervalued currency will help a country to promote and increase its exports, as the exchange rate is lower than the market equilibrium; resulting in lower prices of exports than the ideal export prices. At the same time, imports are costlier, so the net exports increases. In case of an overvalued currency, net exports will fall and the trade deficit will increase.

 

 

   Related Questions in Business Economics

  • Q : Problem regarding to taxes and market

    The new supply and demand curves within University City are S0 and D0. But after the county commission imposed a $3 per six-pack excise tax upon beer, monthly sales of six-packs: (w) fell to 10,000, and buyers paid $6.50 each, bu

    		•
  • Q : Illustrates inverse relationship

    Illustrates the inverse relationship between price and quantity?

    		•
  • Q : Describe four important areas to

    Describe four important areas to emphasize Expenditures?

    		•
  • Q : Market Apparent program For the

    For the question below, utilize the given information. The market for gizmos is competitive, with an increasing sloping supply curve and a downward sloping demand curve. With no govt. intervention, the equilibrium price is $25 and the equilibrium quantity is 10,000 gi

    		•
  • Q : Economic efficiency enhancement as

    Transaction costs are decreased and economic efficiency is enhanced by: (1) long-term wage and price controls. (2) monopolies which cooperate with central planners. (3) blacklists and yellow dog contracts. (4) bureaucratic tendencies

    		•
  • Q : Demand for bagels rises dramatically

    Explain the demand for bagels rises dramatically while the demand for breakfast cereal falls?

    		•
  • Q : Illustrate the Law of supply Illustrate

    Illustrate the Law of supply?

    		•
  • Q : Illustrate the advantage of corporate

    Illustrate the advantage of corporate form of organization?

    		•
  • Q : Economics as a science Economics as a

    Economics as a science:We no longer ask the problem whether economics is an art or a science. Science is a systematized body of knowledge. Merely as physics and chemistry are sciences, econo

    		•
  • Q : Meaning of Economic Development

    Question Discuss what "economic development" means in the context of this game? (Hint: How do you win, and what do you have at the end of the game that you did not have at the beginning of the game?)