In an Economy with a Fixed Exchange Rate, an Increased

question 11

Multiple Choice

In an economy with a fixed exchange rate, an increased demand for foreign goods would increase the supply of the domestic currency. To stop its currency from _______, the government would need to purchase _______currency in the foreign-exchange market.

• A) depreciating; foreign
• B) depreciating; domestic
• C) appreciating; domestic
• D) appreciating; foreign

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Definitions:

Net Income

The remainder income for a company once it has accounted for all expenditures and tax payments from its earnings.

Sales

Transactions involving the exchange of goods or services for money or equivalent rewards.

Quick Ratio

A financial metric that measures a company’s ability to meet its short-term obligations with its most liquid assets.

Current Ratio

A financial metric assessing a firm's capacity to meet its obligations due within the next year by dividing its current assets by its current liabilities.