There Are Limits to the Ability of Monetary Authorities to Use

question 6

Multiple Choice

There are limits to the ability of monetary authorities to use sterilized intervention in the case of a surplus because:

• A)the central bank may be unwilling to increase its holdings of foreign currency.
• B)the pressure from foreign countries to allow the domestic currency to depreciate will lead to large losses.
• C)the central bank's ability to constantly obtain foreign currency for the sterilized intervention is constrained.
• D)the export level is fixed and it cannot be allowed to drop.

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Definitions:

International Trade

The trade of products and services across the borders of different countries or territories.

Consumer Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service versus the total amount that they actually pay.

Producer Surplus

The gap between the price producers are willing to accept for offering a good or service and the actual price they receive.

World Price

The global equilibrium price of a good or service determined by worldwide supply and demand.