If a Nation Wants to Maintain a Fixed Exchange Rate

question 81

Multiple Choice

If a nation wants to maintain a fixed exchange rate at a time when supply and demand are causing an excess of imports over exports, the nation might

• A) shift to a more expansionary monetary policy.
• B) shift to a more restrictive monetary policy.
• C) reduce its trade barriers (tariffs and quotas).
• D) tax exports and subsidize imports.

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Definitions:

Consumption Bundle

A specific mix of goods and services that a consumer chooses to consume, reflecting the consumer's preferences and budget constraints.

Horizontal Axis

The x-axis in a graph, generally representing the independent variable in data representation or analysis.

Perfect Complements

Goods that are consumed together in fixed proportions because their use together enhances their combined utility.

Indifference Curves

Graphical representations used in microeconomics to show different combinations of two goods between which a consumer is indifferent, signifying equal levels of utility.