?

Macroeconomics

Free Version

Upgrade subject to access all content

Moderate

Fixed Exchange Rates

MACRO-FH83JI

Assume that the Orono currency, the crown, has a fixed exchange rate of 2 Oronos per U.S. dollar. The equilibrium exchange rate should be 1 Orono per dollar.

In this case, with a fixed exchange rate, which of the following is true?

A

The Orono crown is overvalued and Orono will be importing more than it is exporting.

B

Orono will have a balance of payments deficit, unless the crown depreciates in value.

C

The U.S. dollar is overvalued and the U.S. will likely import more than it exports.

D

Orono will have a current account surplus that will be just offset by a financial account deficit, balancing its international payments.