Under a Fixed Exchange Rate System,when the Currency Is Pegged

question 106

Multiple Choice

Under a fixed exchange rate system,when the currency is pegged below the equilibrium value,what is a country likely to face?

• A)an increase in real GDP
• B)a reduction in international reserves
• C)a falling interest rate
• D)a reduction in its inflation rate

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Definitions:

NAFTA

North American Free Trade Agreement; a treaty among the United States, Canada, and Mexico that eliminated most tariffs and trade barriers.

Free Trade Area

A region where a group of countries has agreed to reduce or eliminate trade barriers among themselves, such as tariffs and import quotas.

United States, Mexico, Canada

Refers to the countries involved in the USMCA trade agreement, which is designed to promote trade, strengthen economic relations, and support mutual economic growth.

World Bank

An international financial institution that provides loans and grants to the governments of poorer countries for the purpose of pursuing capital projects.