Under a System of Fixed Exchange Rates,if the International Reserves

question 31

Multiple Choice

Under a system of fixed exchange rates,if the international reserves of a country's central bank become exhausted,it cannot keep its currency

• A) from appreciating,and a devaluation must take place in which the official exchange rate is set at a lower value
• B) from appreciating,and a devaluation must take place in which the official exchange rate is set at a higher value
• C) from depreciating,and a devaluation must take place in which the official exchange rate is set at a lower value
• D) from depreciating,and a revaluation must take place in which the official exchange rate is set at a higher value

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Definitions:

Special-Interest Effect

The phenomenon where policy decisions disproportionately benefit a small, particular group at the expense of the general public.

Free-Rider Problem

A situation where individuals consume a good or service without contributing to its cost, often leading to underprovision of that good.

Public Goods

Goods that are non-excludable and non-rivalrous, meaning they can be used simultaneously by more than one person without diminishing availability to others.

Location Subsidies

Financial incentives provided by governments to encourage businesses to establish operations in specific areas, often to stimulate economic growth.