To Maintain a Fixed Exchange Rate,a Central Bank

question 14

Multiple Choice

To maintain a fixed exchange rate,a central bank

• A) must buy up any excess supply of its currency at that rate
• B) must buy up any excess demand for its currency at that rate
• C) must maintain a fixed money supply
• D) must also maintain a fixed interest rate target
• E) should "buy low and sell high"

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Definitions:

Economic Profit

Economic Profit is the difference between a firm's total revenue and its total costs, including both explicit and implicit costs, serving as a measure of a firm's financial performance beyond basic accounting profit.

Oligopoly Industry

An oligopoly industry is characterized by a small number of firms that have significant market power, leading to limited competition and the potential for collusion.

Market

Any structure that allows buyers and sellers to exchange any type of goods, services, and information.

Nash Equilibrium

A concept in game theory where no player can benefit by changing strategies while the other players keep theirs unchanged, indicating a stable state of balance.