If a Country Has a Balance of Payments Deficit and Wishes

question 146

Multiple Choice

If a country has a balance of payments deficit and wishes to maintain the fixed value of its currency, it will generally

• A)sell its own currency for foreign currencies.
• B)buy its own currency with foreign reserves.
• C)decrease taxes to increase domestic disposable income.
• D)increase the money supply to keep interest rates down.

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Definitions:

Capital Gain

The profit from the sale of assets or investments, such as stocks or real estate, which exceeds the purchase price.

Gift

A voluntary transfer of property or funds from one person to another without receiving anything in return, or at least without expecting a return equal to the value of the gift.

Short-Term Capital Loss

A financial loss realized on the sale of securities or assets held for one year or less, which can be used to offset capital gains for tax purposes.

Long-Term Capital Gain

The profit from the sale of an asset held for more than a year, generally taxed at a lower rate than short-term gains.