Under a Fixed Exchange Rate System,the Central Bank of a Country

question 68

Multiple Choice

Under a fixed exchange rate system,the central bank of a country experiencing a balance of payments surplus will:

• A)increase the supply of domestic currency to prevent currency depreciation.
• B)increase the demand for domestic currency to prevent currency depreciation.
• C)increase the supply of domestic currency to prevent a currency appreciation.
• D)increase the demand for domestic currency to prevent a currency appreciation.

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Definitions:

Purely Competitive

A market structure characterized by many buyers and sellers, freely entering and exiting the market, with all firms selling identical or nearly identical products.

Unit Price

The cost per unit of a product or service, making it easier to compare the value of similar items.

Market Price

The current market price for buying or selling an asset or service in an open exchange.

Purely Competitive

A market structure characterized by many buyers and sellers, homogeneous products, and free entry and exit of firms.