Question

If the Costa Rican government sets the exchange rate at 10 colon per U.S. dollar, then

A. the supply of Costa Rican colones will increase.
B. the supply of Costa Rican colones will decrease.
C. the quantity supplied of Costa Rican colones will decrease.
D. the quantity supplied of Costa Rican colones will increase.
E.the quantity demanded of Costa Rican colones will decrease.

Answer 1

If the Costa Rican government sets the exchange rate at 10 colon per U.S. dollar, then
D. the quantity supplied of Costa Rican colones will increase.

Answer 2

The correct answer is C. If the Costa Rican government sets the exchange rate at 10 colon per U.S. dollar, then the quantity supplied of Costa Rican colones will decrease.

Step-by-step explanation:

Today, the exchange rate of the Costa Rican Colon is 565 Colones for 1 Dollar. Therefore, if the Costa Rican government decided to set the exchange rate at 1 Dollar for 10 Colones, there would be a revaluation of the currency of Costa Rica, which would require less Colones to buy the various products available in the market.

Therefore, given a revaluation of its currency, Costa Rica would stop issuing money, since the needs of the population would be covered by the circulating money. Therefore, given this economic scenario, the quantity supplied of Colones would begin to decrease.