Suppose the Government of New Country Has Fixed the Value

question 110

Multiple Choice

Suppose the government of New Country has fixed the value of its currency, the New Peso, at $1 per New Peso, but the market equilibrium value of the New Peso is $0.50 per New Peso. In order to maintain the official value of the New Peso the Central Bank of New Country must either ________ domestic interest rates, or ________ the supply of international reserves by purchasing New Pesos.

• A)raise; increase
• B)raise; decrease
• C)lower; decrease
• D)lower; increase

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Definitions:

Cognitive Dissonance

The psychological unease felt by someone who simultaneously harbors conflicting beliefs, ideas, or values.

Contradictory Attitudes

Holding conflicting beliefs or feelings towards a particular subject, object, or person.

Conflict

A situation or process through which individuals, groups, or ideas are in opposition and engaged in a struggle for dominance, agreement, or resolution.

Cognitive Dissonance

The psychological discomfort or stress experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time.