Suppose That the United States Fixes the Dollar-Pound Exchange Rate

question 62

Multiple Choice

Suppose that the United States fixes the dollar-pound exchange rate. In the process of maintaining the fixed exchange rate, the U.S. central bank regularly finds itself in a position of having to increase its reserves of pounds. Based on this, we could conclude that

• A)the fixed dollar-pound exchange rate is consistently below the equilibrium exchange rate that would be produced by a private foreign exchange market.
• B)the fixed dollar-pound exchange rate consistently exceeds the equilibrium exchange rate that would be produced by a private foreign exchange market.
• C)the fixed dollar-pound exchange rate is a good approximation of the exchange rate that would be produced by a private foreign exchange market.
• D)the U.S. central bank is regularly having to reduce the domestic money supply.

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Definitions:

Hemophilia

A rare genetic disorder where the blood's ability to clot is severely reduced, causing excessive bleeding from even slight injuries.

Royal Families

Families that belong to a royal lineage, often ruling over a monarchy and carrying titles of nobility.

Sex-Linked Recessive Trait

A genetic trait located on the sex chromosomes that is expressed in individuals with two copies of the allele, often manifesting more frequently in males.

Hemophiliac Male

A male individual with hemophilia, a genetic disorder that impairs the blood's ability to clot, leading to prolonged bleeding from minor injuries.