In an Economy with a Fixed Exchange Rate, an Increased

question 12

Multiple Choice

In an economy with a fixed exchange rate, an increased demand for foreign goods would increase the supply of local currency, and the government would have to buy:

• A) foreign currency in the foreign exchange market to prevent the domestic currency from depreciating.
• B) local currency in the foreign-exchange market to prevent the currency from depreciating.
• C) local currency in the foreign-exchange market to prevent the currency from appreciating.
• D) foreign currency in the foreign exchange market to prevent the domestic currency from appreciating.

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Definitions:

New Product

An item or service recently developed or introduced to the market, offering new value to consumers.

Breakthrough

Refers to a significant and sudden advance or discovery that opens up new possibilities in a field of study, technology, or industry.

Continuous

An ongoing, uninterrupted process, action, or flow that does not have a clear beginning or end.

Product

Any item or service that is created through a process and is offered to the market to satisfy a need or want.