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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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BuyFindarrow_forward

Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

Under a fixed exchange rate system, setting the official price of a peso in terms of dollars automatically sets the official price of a dollar in terms of pesos. Do you agree or disagree? Explain.

To determine

Check whether the statement is agreeable or not.

Explanation

Fixed exchange rate system is a system in which the value of one currency with respect to another currency or a basket of other currencies will be fixed. Under this system, setting the official price of a peso in relation to dollar will not set the official price of dollar in relation to the pesos automatically. When one currency is overvalued, the other one will undervalued, and then countries will agree to change the official exchange rate.

For example, the first exchange rate is 0.10 dollar that is equal to 1 peso or in other words, 10 pesos is equal to 1 dollar...

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