Survey of Economics Test
Questions
Course Introduction
Survey of Economics introduces students to the fundamental principles of both microeconomics and macroeconomics, providing a broad overview of how economic systems operate. Topics include supply and demand, market structures, consumer behavior, production, national income, inflation, unemployment, and fiscal and monetary policy. The course emphasizes the relevance of economics in everyday life and encourages critical thinking about economic issues, public policy, and the impact of economic decisions on individuals and society as a whole.
Recommended Textbook
Economics 5th Edition by R. Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Refer to Table 1-1. What is Lydia's marginal benefit if she decides to stay open for two hours instead of one hour?
A) $25
B) $50
C) $75
D) $125
Answer: A
Q2) A university must decide if it should stop offering foreign language classes. This decision involves answering the economic question of "how to produce."
A)True
B)False
Answer: False
Q3) If it costs Vijay $150 to design 5 websites and $175 to design 6 websites, then $175 is the marginal cost of producing the 6th website.
A)True
B)False
Answer: False
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Figure 2-4. Consider the following events: a. an increase in the unemployment rate
B. general technological advancement
C. an increase in consumer wealth
Which of the events listed above could cause a movement from Z to V ?
A) a only
B) a and b only
C) b and c only
D) a, b, and c
Answer: A
Q2) Any output combination outside a production possibility frontier is associated with unused or underutilized resources.
A)True
B)False
Answer: False
Q3) In economics, the term "free market" refers to a market where no sales tax is imposed on products sold.
A)True
B)False
Answer: False
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) If a demand curve shifts to the left, then A) demand has increased.
B) quantity demanded has increased.
C) demand has decreased.
D) quantity demanded has decreased.
Answer: C
Q2) Refer to Figure 3-4. At a price of $15, how many units will be sold?
A) 300
B) 400
C) 600
D) 700
Answer: B
Q3) If a decrease in income leads to in a decrease in the demand for ice cream, then ice cream is
A) a normal good.
B) a neutral good.
C) a complement.
D) a necessity.
Answer: A
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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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Sample Questions
Q1) Refer to Figure 4-3. Kendra's marginal benefit from consuming the third ice cream cone is
A) $13.00
B) $2.50
C) $1.50
D) $0.50
Q2) Price floors are illegal in the United States.
A)True
B)False
Q3) Consumers are willing to purchase a product up to the point where
A) the marginal benefit of consuming the product is equal to the marginal cost of consuming it.
B) the consumer surplus is equal to the producer surplus.
C) the marginal benefit of consuming the product equals the area below the supply curve and above the market price.
D) the marginal benefit of consuming a product is equal to its price.
Q4) Government intervention in agriculture began in the United States in the 1890s. A)True
B)False
Q5) What is economic surplus? When is economic surplus at a maximum?
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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Sample Questions
Q1) Refer to Figure 5-9. Suppose the government wants to use a Pigovian tax to bring about the efficient level of production. What should the value of the tax be?
A) (P2- P1) per ton of output
B) (P2- P0) per ton of output
C) (P1- P0) per ton of output
D) P1 per ton of output
Q2) Refer to Figure 5-1. If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does S2 represent?
A) the market supply curve reflecting private cost
B) the market supply curve reflecting social cost
C) the market supply curve reflecting external cost
D) the market supply curve reflecting implicit cost
Q3) A quasi-public good differs from a public good in that unlike a public good, it is possible to keep out those who do not pay for the quasi-public good from enjoying the benefits of the good.
A)True
B)False
Q4) What is an externality?
Page 7
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Q1) Suppose the price of gasoline is $3.50 per gallon, the quantity of gasoline demanded is 150 billion gallons per year, the price elasticity of demand for gasoline is -0.06, and the federal government decides to increase the excise tax on gasoline by $1.00 per gallon, which increases the price of gasoline by $0.75 per gallon. What is the new equilibrium quantity of gasoline demanded after the tax is imposed?
A) 109.72 billion gallons per year
B) 127.25 billion gallons per year
C) 148.27 billion gallons per year
D) 161.61 billion gallons per year
Q2) In September 2006, the Food and Drug Administration recommended that Americans avoid eating bagged raw spinach in the wake of an outbreak of E. coli bacteria. Following this recommendation, the food industry looked at alternatives and many turned to arugula. One Chicago distributor claimed, "The sale of the stuff has gone through the roof." Based on this information,
A) arugula is a normal good while raw spinach is an inferior good.
B) the cross-price elasticity between arugula and spinach is negative.
C) the cross-price elasticity between arugula and spinach is positive.
D) the price elasticity of arugula is positive while the price elasticity of spinach falls to zero.
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) Adverse selection in the market for health insurance arises because
A) many insurance companies care more about profits than they do about providing services for their customers in the event of illness.
B) the federal government intervenes in insurance markets by controlling prices and reimbursement policies.
C) insurance companies are not allowed to charge premiums that are high enough to insure against "worst-case" illness.
D) buyers of insurance know more than insurance companies about the likelihood of an illness for which buyers want insurance.
Q2) The number of people receiving Medicare is expected to grow to 80 million by the year
A) 2105.
B) 2020.
C) 2030.
D) 2075.
Q3) Insurance companies use deductibles and coinsurance to reduce moral hazard.
A)True
B)False
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) What is a primary market?
A) a market where primary inputs like steel are sold
B) a market where you can sell any bonds you own as a private investor
C) a market where a newly issued claims are sold to initial buyers by the borrowing firm
D) a market where you can sell any stocks you own as a private investor
Q2) In 2011, the dividend yield on Microsoft (MSFT) stock rose from 1.97% to 3.10%. Which of the following would have generated that result?
A) The closing price of Microsoft stock rose.
B) Microsoft announced an increase in the dividend it would pay per share.
C) The price-earnings ratio rose.
D) Microsoft issued bonds with a coupon rate equal to 3.10%.
Q3) Define a corporation.
Q4) Economists refer to the conflict between the interests of shareholders and the interests of top management as
A) a stock-equity problem.
B) a liability problem.
C) a principal-agent problem.
D) a financial intermediary problem.
Page 10
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Q1) Which of the following describes the infant industry argument for protectionism?
A) An industry must be protected in its early stages of development so that firms can compete with government-subsidized foreign competition.
B) Some strategic industries must be protected to ensure adequate supplies of resources needed for national defense in emergencies.
C) Domestic producers in high-wage countries must be protected from foreign producers in low-wage countries to produce a level playing field.
D) Domestic producers require time to gain experience and lower their unit costs; this will allow these producers to compete successfully in international markets.
Q2) Refer to Figure 9-2. Without the tariff in place, the United States produces
A) 9 million pounds of rice.
B) 15 million pounds of rice.
C) 31 million pounds of rice.
D) 42 million pounds of rice.
Q3) One of the main sources of comparative advantage is natural resources.
A)True
B)False
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) Arnold Kim began blogging about Apple products during his fourth year of medical school. Kim's Website, MacRumors.com, became so successful that he decided to give up his medical career and work full time on his Website, despite the nearly $200,000 he had invested in his education. In making his decision, Kim decided to ignore the money and time he spent on his education. Economists would say that Kim made a
A) rational decision to ignore these sunk costs.
B) poor decision since he had already invested his time and money on his medical career.
C) poor decision since doctors are in greater demand than bloggers.
D) hasty decision by not waiting to recoup his financial investment before giving up his medical career.
Q2) Economists have used ________ and ________ in experiments designed to determine whether consumers care about fairness when they make decisions.
A) Giffen goods; luxury goods
B) the income effect; the substitution effect
C) the ultimatum game; the dictator game
D) network externalities; the endowment effect
Q3) What is a Giffen good?
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Chapter 11: Technology, Production, and Costs
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Sample Questions
Q1) An isoquant is a curve that shows all the combinations of two inputs that will produce the same level of output.
A)True
B)False
Q2) Academic book publishers hire editors, designers, and production and marketing managers who help prepare books for publication. Because these employees work on several books simultaneously, the number of people the company hires will not go up and down with the quantity of books the company publishes during any particular year. The salaries and benefits of people in these job categories will be included in
A) fixed cost and marginal cost but not variable cost.
B) fixed cost but not variable cost and total cost.
C) marginal cost and total cost but not fixed cost.
D) fixed cost and total cost but not variable cost.
Q3) If average total cost is falling, marginal cost must also be falling.
A)True
B)False
Q4) In economics, technology only refers to the development of new products.
A)True
B)False
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Chapter 12: Firms in Perfectly Competitive Markets
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Q1) Which of the following describes a situation in which a good or service is produced at the lowest possible cost?
A) productive efficiency
B) allocative efficiency
C) marginal efficiency
D) profit maximization
Q2) A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000. The prevailing market price is $15. What will happen to the market price of wheat in the long run?
A) The price remains constant at $15.
B) The price falls to $12.
C) The price rises above $15.
D) There is insufficient information to answer the question.
Q3) What is a long-run supply curve? What does a long-run supply curve look like on a perfectly competitive market graph?
Q4) In the short run, if a firm shuts down, it avoids its variable cost but not its fixed cost.
A)True
B)False
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Q1) The financial situation at Starbucks in the late 2000s illustrates the fact that maintaining long-run profits in a monopolistically competitive market is
A) impossible.
B) very difficult.
C) fairly easy.
D) almost always guaranteed.
Q2) Which of the following is a disadvantage of trademarking a firm's product?
A) A trademark differentiates a firm's product.
B) A trademark conveys information about the product to the public.
C) A trademark may become so widely used to denote a particular type of product that the trademark may no longer be a legally protected brand name.
D) A trademark does not affect demand for the firm's product.
Q3) Refer to Figure 13-13. Economies of scale are exhausted at which output level?
A) Q1 units
B) Q2 units
C) Q3 units
D) more than Q1 units
Q4) What is meant by "excess capacity"? How does it relate to consumer utility?
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Q5) What is the difference between zero accounting profit and zero economic profit?
Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Q1) In 2013, the Educational Testing Service (ETS) charged $51 to take the Scholastic Aptitude Test (SAT) but $150 to take the Graduate Record Exam (GRE). One reason for this difference in price is
A) more people took the SAT than the GRE in 2013.
B) the GRE is a longer test with more questions.
C) an average, those who take the GRE have higher incomes than those who take the SAT.
D) the ETS faces competition in the market for the SAT but no competition for the GRE.
Q2) The justification for occupational licensing laws is that they protect the public from incompetent practitioners (for example, lawyers and medical doctors), but the laws also result in
A) higher prices and restrictions on the number of people who can enter the professions affected by the laws.
B) economies of scale.
C) ownership of a key input.
D) an increase in the amount of output required to achieve minimum efficient scale.
Q3) Firms in an oligopoly are said to be interdependent. What does this mean?
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Chapter 15: Monopoly and Antitrust Policy
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Q1) Economists played a key role in the development of merger guidelines by the Department of Justice and the Federal Trade Commission in 1982. These guidelines have three main parts. What are these parts?
A) concentration ratios; the Herfindahl-Hirschman Index; market standards
B) concentration standards; concentration ratios; competitive analysis
C) economic analysis; political analysis; dynamic analysis
D) market definition; measure of concentration; merger standards
Q2) Natural monopolies in the United States are generally regulated by A) the Federal Trade Commission.
B) the Department of Justice.
C) local or state regulatory commissions.
D) the Department of Commerce.
Q3) Identify four reasons for high entry barriers. Briefly explain each reason.
Q4) In reality, because few markets are perfectly competitive, some loss of economic efficiency occurs in the market for nearly every good or service.
A)True
B)False
Q5) What is the difference between a monopoly's marginal revenue curve and a perfect competitor's marginal revenue curve?
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Chapter 16: Pricing Strategy
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Q1) The process of rapidly adjusting prices based on information gathered on consumers' preferences and their responsiveness to changes in price is called
A) yield management.
B) elasticity management.
C) brand management.
D) marketing.
Q2) Arnold's Airport Transport provides passenger transportation to and from the local airport. Arnold charges a flat rate of $30 per person for round-trip service, and he gives a $5 discount to senior citizens. Assume Arnold's marginal cost is $3.00 per person. Draw two graphs, one showing demand and marginal cost for his $30 customers, of which he has 300 per month, and the other graph showing demand and marginal cost for his senior citizen customers, of which he has 100 per month. If Arnold charged all of his customers $30, he would have 325 customers per month.
Q3) Why might an amusement park switch from charging admission to the park and charging for the rides to charging for admission but not charging for the rides?
Q4) What is perfect price discrimination and why do economists believe that no firm is able to practice perfect price discrimination?
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Chapter 17: The Markets for Labor and Other Factors of Production
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Q1) Marginal revenue product of labor for a competitive seller is
A) the change in total product from hiring one more worker.
B) equal to the marginal product of labor multiplied by the output price.
C) the output price multiplied by the quantity sold.
D) the marginal revenue of the product multiplied by the output price.
Q2) Differences in marginal revenue products are the most important factor in explaining wage differences. Other factors that explain wage differences include all but one of the following. Which factor does not help explain differences in wages?
A) cognitive differentials
B) compensating differentials
C) discrimination
D) labor unions
Q3) Which of the following factors has significantly increased the supply of labor in the United States since 1950?
A) a large increase in the substitution effect as a result of higher wages
B) a low birth rate and an aging population
C) an increase in the number of people who have received college degrees
D) an increase in the labor force participation rate of women
Q4) What is personnel economics?
Page 19
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Chapter 18: Public Choice, Taxes, and the Distribution of Income
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Q1) According to the benefits-received principle, those who receive the benefits from a government program should pay the taxes that support the program.
A)True
B)False
Q2) A tax bracket is
A) the percent of taxable income paid in taxes at a specific income bracket.
B) the income range within which a particular tax rate applies.
C) the type of tax structure for which a range of taxes applies.
D) the range, from the high to the low tax rate, of a particular type of tax.
Q3) Which of the following statements concerning the federal corporate income tax is true?
A) It is an efficient tax because it imposes a small excess burden relative to the tax revenue it raises.
B) The incidence of the corporate income tax can be determined by using demand and supply analysis.
C) Determining the incidence of the corporate income tax is complicated because it is not certain how corporations respond to the tax.
D) The corporate income tax is an example of the benefits-received principle.
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Chapter 19: GDP: Measuring Total Production and Income
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Q1) Refer to Table 19-21. Consider the following data for a simple economy: Calculate nominal GDP and real GDP for 2013, using 2011 as the base year. Show your work.
Q2) Refer to Table 19-30. Based on the table above, what is personal income for this economy?
A) $1,950 billion
B) $2,250 billion
C) $2,450 billion
D) $5,130 billion
Q3) Recent estimates put the size of the underground economy in the United States at ________ of measured GDP.
A) 2 percent
B) 8 percent
C) 13 percent
D) over 50 percent
Q4) GDP is not a perfect measure of well-being because A) the value of leisure is included in GDP.
B) GDP is not adjusted for pollution.
C) GDP is adjusted for changes in crime rates.
D) GDP is adjusted for increases in drug addiction.
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Chapter 20: Unemployment and Inflation
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Q1) Discouraged workers are
A) workers who have a part time job but want a full time job.
B) workers who find their current jobs unfulfilling and are considering a job change.
C) workers who have consistently been looking for work for more than 4 weeks.
D) workers who have stopped looking for work because they believe there are no jobs for them.
Q2) Suppose 180,000 people are employed, 20,000 people are unemployed, the working-age population is 250,000, and 50,000 people are out of the labor force. Calculate the unemployment rate.
Q3) Establishing a state employment agency that speeds up the process of matching unemployed workers with unfilled jobs is an attempt to lower A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) seasonal unemployment.
E) unnatural unemployment.
Q4) Real interest rates at times have been negative. Why would anyone lending money agree to a negative real interest rate?
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Chapter 21: Economic Growth, the Financial System, and Business Cycles
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Q1) What is human capital?
A) a slang term for the underground labor market
B) manufactured goods that are used to produce other goods
C) accumulated knowledge and skills acquired by a worker
D) the manager or owner of a business
Q2) Explain what happens to inflation during the business cycle. Give an intuitive explanation as to why inflation changes the way it does over the business cycle.
Q3) Which of the following is an example of human capital?
A) a computer
B) a factory building
C) a college education
D) a software program
Q4) Refer to Table 21-2. Using the table above, what is the approximate growth rate of real GDP from 2012 to 2013?
A) -2%
B) -1%
C) 1%
D) 2%
Page 23
Q5) Explain why the demand curve for loanable funds has a negative slope.
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Chapter 22: Long-Run Economic Growth: Sources and Policies
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Q1) If there is a change in the ability of a firm to produce a given level of output with a given level of inputs, we say there is
A) human capital investment.
B) technological change.
C) an increase in labor productivity.
D) a movement along a given per-worker production function.
Q2) ________ is considered a high income country, ________ a developing country, and ________ a newly industrializing country.
A) Japan; Hong Kong; South Korea
B) United States; Somalia; Taiwan
C) Canada; France; Singapore
D) Honduras; New Zealand; South Korea
Q3) When additions of input to a fixed quantity of another input lead to progressively smaller increases in output, we say we are facing
A) diminishing returns.
B) negative returns.
C) accelerating returns.
D) decreasing production.
Q4) Is knowledge capital subject to the law of diminishing returns? Explain.
Page 24
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Chapter 23: Aggregate Expenditure and Output in the Short Run
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Q1) Into which category of aggregate expenditure would each of the following transactions fall?
a. Sandra MacMillian purchases a new Ford Focus.
b. The city of Richardson buys 5 new garbage trucks.
c. Adrian Garcia buys a newly constructed townhome.
d. A consumer in Latvia orders an iPhone from Apple.
e. Ford Motor Company buys 300 new iPhones from Apple.
Q2) In a small economy in 2013, aggregate expenditure was $850 million while GDP that year was $800 million. Which of the following can explain the difference between aggregate expenditure and GDP that year?
A) Aggregate expenditure is always less than GDP in developed countries.
B) Firm investment in inventories was less than anticipated in 2013.
C) Firm investment in inventories was greater than anticipated in 2013.
D) Aggregate expenditure is always less than GDP in developing countries.
Q3) The aggregate demand curve shows the relationship between the price level and the level of planned aggregate expenditure in the economy.
A)True
B)False
Q4) What is the difference between aggregate expenditure and aggregate demand?
Page 25
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Chapter 24: Aggregate Demand and Aggregate Supply Analysis
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Q1) If, due to a recession, foreign workers begin to leave the United States to search for temporary work in their home countries until the recession has ended, this will
A) shift the short-run aggregate supply curve of the home country to the left.
B) shift the short-run aggregate supply curve of the home country to the right.
C) move the home country's economy up along a stationary short-run aggregate supply curve.
D) move the home country's economy down along a stationary short-run aggregate supply curve.
Q2) The level of long-run aggregate supply is affected by all of the following except A) changes in the price level.
B) changes in the technology.
C) changes in the capital stock.
D) changes in the number of workers.
Q3) President Obama has discussed raising income taxes for individuals earning over $250,000 in income. Explain how these higher income taxes will affect the aggregate demand curve.
Q4) Explain the three reasons the aggregate demand curve slopes downward.
Q5) What does the phrase "Keynesian revolution" refer to?
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Chapter 25: Money, Banks, and the Federal Reserve System
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Q1) If people speculate that a run on one bank will cause a run on all banks in the financial system, and this speculation proves accurate, then the financial system would experience what is known as a A) commodity crisis.
B) securitization meltdown.
C) bank panic.
D) institutional death spiral.
Q2) To increase the money supply, the Federal Reserve could
A) lower the discount rate.
B) decrease income taxes.
C) raise the required reserve ratio.
D) conduct an open market sale of Treasury securities.
Q3) In countries that have experienced hyperinflation, what role have large government budget deficits played in causing the very high inflation rates?
Q4) Money will fail to serve as a medium of exchange if it ceases to be a store of value. A)True B)False
Q5) What is the principle monetary policy tool used by the Fed. Why?
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Chapter 26: Monetary Policy
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Q1) Refer to Figure 26-8. In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to
A) lower interest rates.
B) raise interest rates.
C) lower income taxes.
D) raise income taxes.
Q2) Lowering the interest rate will
A) decrease spending on consumer durables.
B) increase investment projects by firms.
C) decrease spending on new homes.
D) decrease the value of the dollar and lower net exports.
Q3) The dynamic aggregate demand and aggregate supply model accounts for the price level rising every year.
A)True
B)False
Q4) Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.
A)True B)False
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Chapter 27: Fiscal Policy
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Q1) A change in consumption spending caused by income changes is ________ change in spending, and a change in government spending that occurs to improve roads and bridges is ________ change in spending.
A) an induced; an autonomous
B) an expansionary; a contractionary
C) an autonomous; an induced
D) a contractionary; an expansionary
Q2) Which of the following best describes supply-side economics?
A) Labor productivity affects aggregate supply.
B) Education affects labor productivity which affects aggregate supply.
C) Education affects the incentive to work, save, and invest and, therefore, aggregate supply.
D) Tax rates, particularly marginal tax rates, affect the incentive to work, save, and invest and, therefore, aggregate supply.
Q3) What are the key differences between how we illustrate an expansionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?
Q4) What is the difference between federal purchases and federal expenditures?
Q5) What is the difference between fiscal policy and monetary policy?
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Chapter 28: Inflation, Unemployment, and Federal Reserve Policy
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Q1) Refer to Figure 28-7. Consider the Phillips curves depicted in the graph above. The Fed announces its intention to decrease inflation from 10 percent to 5 percent per year, and it succeeds. If expectations of inflation are reduced to 8 percent by the Fed's announcement, the rate of unemployment will be ________ in the short run.
A) less than 5.5 percent
B) 5.5 percent
C) between 5.5 and 7.5 percent
D) 7.5 percent
Q2) Suppose that last year the unemployment rate was 5 percent and the inflation rate was 2.5 percent. If the natural rate of unemployment is 5 percent, how do you expect inflation to change?
Q3) Ceteris paribus, an increase in the current or actual rate of inflation will cause
A) the short-run Phillips curve to shift upward.
B) the unemployment rate to decrease (a movement along the short-run Phillips curve). C) the long-run Phillips curve to shift leftward.
D) expectations of future inflation rates to be revised downward.
Q4) What does it mean to say that workers and firms have rational expectations?
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Chapter 29: Macroeconomics in an Open Economy
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Q1) If the United States is a "net lender" abroad, ________. (Assume that the capital account is zero and net transfers are zero.)
A) the United States must be exporting less than it is importing
B) net capital flows must be positive
C) domestic saving is greater than domestic investment
D) net foreign investment must be negative
Q2) An economy that does not have interactions in trade or finance with other economies is referred to as
A) an open economy.
B) a closed economy.
C) a trade-balanced economy.
D) a net foreign investment economy.
Q3) Which of the following would increase the balance on the current account?
A) an increase in foreign direct investment
B) an increase in the amount of aid money the government sends abroad
C) an increase in imports
D) an increase in the balance of trade
Q4) Expansionary fiscal policy crowds out both domestic investment and net exports.
A)True
B)False
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Chapter 30: The International Financial System
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Q1) The "Big Mac Theory of Exchange Rates" tests the accuracy of purchasing power parity theory. In July 2013, the Economist reported that the average price of a Big Mac in the United States was $4.56. In Mexico, the average price of a Big Mac at that time was 37 pesos. If the exchange rate between the dollar and the peso was 13.60 pesos per dollar, how would purchasing power parity predict the exchange rate will change in the long run? Support your answer graphically.
Q2) Under the Bretton Woods system, a fixed exchange rate supported by central banks was known as a(n) ________ exchange rate.
A) par
B) equilibrium
C) fundamental
D) target
Q3) In a fixed exchange rate system, speculation regarding an expected revaluation or devaluation of a currency makes it more difficult to maintain the existing exchange rate.
A)True
B)False
Q4) What is destabilizing speculation? What role did it play in the collapse of the Bretton Woods system?
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