If a Central Bank Does Not Want to Allow the Domestic

question 108

Multiple Choice

If a central bank does not want to allow the domestic currency to appreciate,it will ________ international reserves by selling its currency,thereby ________ the monetary base and increasing the risk of higher inflation.

• A)lose;decreasing
• B)lose;increasing
• C)acquire;decreasing
• D)acquire;increasing

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Definitions:

Short-run Phillips Curve

A graphical representation showing the inverse relationship between the rate of inflation and the rate of unemployment in an economy over a short period.

Favorable Supply Shock

An unexpected event that increases the availability of a good or service, thus lowering its price and benefiting consumers.

Inflation

The measure of how quickly the general pricing for products and services advances, decreasing monetary purchasing power.

Unemployment Rate

The ratio of individuals without employment, yet are actively pursuing job opportunities in the labor force.