Asked by Donna Simko on Jun 29, 2024
Verified
If exchange rates end up in the right ranges, the free market will drive each country to shift resources into those sectors in which it enjoys a comparative advantage.
Exchange Rates
The value of one currency for the purpose of conversion to another; it determines how much of one currency can be exchanged for another currency.
Free Market
An economic system where prices for goods and services are determined by the open market and consumers, free from government intervention.
- Elucidate how through the process of specialization and trade, countries are capable of consuming more than what their production possibilities would normally permit.
- Examine the variety of exchange rates enabling trade gains through comparative advantage.
Verified Answer
RB
Riley BitrichJun 30, 2024
Final Answer :
True
Explanation :
This is based on the principle of comparative advantage, which suggests that countries will specialize in producing goods for which they have a lower opportunity cost, leading to more efficient global production and trade. Exchange rates that reflect the true economic value of currencies help in accurately determining comparative advantages.
Learning Objectives
- Elucidate how through the process of specialization and trade, countries are capable of consuming more than what their production possibilities would normally permit.
- Examine the variety of exchange rates enabling trade gains through comparative advantage.