Under a Fixed Exchange Rate Regime,if the Domestic Currency Is

question 113

Multiple Choice

Under a fixed exchange rate regime,if the domestic currency is initially ________,that is,________ par,the central bank must intervene to sell the domestic currency by purchasing foreign assets.

• A)overvalued;below
• B)overvalued;above
• C)undervalued;below
• D)undervalued;above

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Definitions:

Increase Taxes

Refers to a government's decision to raise the percentage of compulsory contributions on personal or corporate income, goods, services, or transactions, often aimed at financing government expenses.

Lower Interest Rates

A monetary policy strategy where central banks reduce the cost of borrowing money in an effort to stimulate economic growth.

Crowding Out

A situation in which increased government spending leads to a reduction in private sector spending and investment.

Contractionary Gap

A situation where an economy's real GDP is lower than its potential GDP, indicating underutilization of resources.