Under Fixed Exchange Rates, Domestic Asset Transactions by the Central

question 151

Multiple Choice

Under fixed exchange rates, domestic asset transactions by the central bank

• A) can be used to alter the level of foreign reserves but not to affect the state of employment and output.
• B) cannot be used to alter the level of foreign reserves but only to affect the state of employment and output.
• C) can be used to alter the level of foreign reserves and to affect the state of employment and output.
• D) can be used to alter the domestic money supply and the level of foreign reserves.
• E) can raise output to full-employment level.

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Definitions:

Law of Small Numbers

A cognitive bias that leads people to make unjustified conclusions based on limited data.

Risks

The potential for losing something of value, or the uncertainty regarding the outcome of an action or decision.

Probability

The likelihood or chance of an event occurring, often expressed as a number between 0 and 1.

Small-Numbers Bias

A situation in markets where the fewness of buyers or sellers can significantly impact the negotiation power and market outcomes.