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q10

For questions 9 and 10: "A second issue concerns how long the fixed exchange rate could be maintained. This, of course, depends on an uncertain future, but if the initial value chosen was appropriate and if domestic costs remained in line with foreign costs, then the rate may be sustainable for some time." 9. If domestic costs remain in line with foreign costs then these countries must have similar: a) tax rates b) interest rates c) inflation rates d) unemployment rates 10. If domestic costs rose above foreign costs then: a) a balance of trade deficit would develop b) a balance of trade surplus would develop c) the balance of payments would be affected, but not the balance of trade d) capital inflows would adjust automatically to prevent an imbalance in the balance of trade