If an Economy Is Following a fiXed Exchange Rate Regime

question 30

Multiple Choice

If an economy is following a fixed exchange rate regime, its central bank's foreign currency reserves will increase when _____.

• A) there is an excess supply of its currency in the foreign exchange market
• B) there is an excess demand for its currency in the foreign exchange market
• C) its imports are equal to its exports
• D) its economy is experiencing low inflation

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Definitions:

Inverse Demand Curve

Another term for the inverse demand function, it graphically represents how price depends on the quantity demanded, illustrating the relationship inverse to the demand curve.

Total Revenue

The total amount of money received by a company from selling goods or services before any expenses are deducted.

Inverse Demand Function

A mathematical representation that describes the relationship between the price of a good and the quantity that consumers are willing and able to purchase, expressed as price as a function of quantity demanded.

Marginal Cost

The expenditure involved in the production of an extra unit of a good or service.