Suppose the Target Exchange Rate Set by the Reserve Bank

question 63

Multiple Choice

Suppose the target exchange rate set by the Reserve Bank is 150 yen per dollar. If the demand for dollars permanently decreases, the Reserve Bank

• A)cannot permanently maintain the target rate.
• B)must violate both interest rate parity and purchasing power parity to permanently meet the target.
• C)can permanently meet the target by selling dollars.
• D)can permanently meet the target by buying dollars.

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Definitions:

Equilibrium Wage

The pay rate where the amount of work offered matches the amount of work required.

Union Membership

The state of being a member of a labor union, which is an organization that represents the collective interests of workers.

United States

A country located in North America, consisting of 50 states, a federal district, five major self-governing territories, and various possessions.

European Countries

Nations that are located in the continent of Europe, which have diverse cultures, economies, and political systems.