Under a Fixed Exchange Rate System, the Government Bears the Responsibility

question 27

Multiple Choice

Under a fixed exchange rate system, the government bears the responsibility to ensure that the BOP is near zero. If the sum of the current and capital accounts do not approximate zero, the government is expected to intervene in the foreign exchange market by buying or selling official foreign exchange reserves. If the sum of the first two accounts is LESS THAN ZERO, a ________ demand for the domestic currency exists in the world. To preserve the fixed exchange rate, the government must then intervene in the foreign exchange market and ________ domestic currency for foreign currencies or gold so as to bring the BOP back near zero.

• A) surplus; sell
• B) surplus; buy
• C) deficit; sell
• D) deficit; buy

---

Definitions:

Reference Groups

Groups that individuals compare themselves to or use as a standard for evaluating their own values, attitudes, and behaviors.

Interpersonal Group Therapy

A form of therapy focusing on the interactions and relationships among group members, to address and improve mental health issues.

Psychodrama

A form of therapy where people act out their experiences and emotions as part of a group to achieve catharsis or insight.

Storming Stage

The second phase in the Tuckman's stages of group development, characterized by conflict and competition as group members come to terms with their roles.