By Holding So Much in Foreign Currency Reserves,China Is Risking

question 93

Multiple Choice

By holding so much in foreign currency reserves,China is risking

• A)Recession.
• B)Deflation.
• C)Inflation.
• D)A default on its bonds.

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Definitions:

Full-Employment Output

is the level of output that an economy can produce when operating at a full employment level, where all available labor and resources are being used efficiently.

Government Securities

Financial instruments issued by the government to finance its expenditures, offering investors a relatively safe investment option compared to other securities.

Discount Rate

The interest rate charged to commercial banks and other financial institutions for loans received from a country's central bank.

Reserve Requirement

This is a regulation set by central banks requiring banks to hold a certain percentage of deposits and notes in reserve, either in their vaults or on deposit with the central bank, as a precaution against bank runs.