Suppose That a Nation Has Adopted a Fixed Exchange Rate

question 201

Multiple Choice

Suppose that a nation has adopted a fixed exchange rate with another country, and has a persistent trade deficit.What is most likely to happen?

• A)A gradual increase in the value of its currency
• B)A gradual decrease in the value of its currency
• C)A "run" on its currency and a sudden appreciation
• D)A "run" on its currency and a sudden devaluation

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