To Maintain a Fixed Exchange Rate Under a Shortage of FX

question 162

Multiple Choice

To maintain a fixed exchange rate under a shortage of FX reserves, the government has the following options, except

• A)encourage foreign investment inflows, and restrict foreign investment outflows.
• B)encourage imports, and discourage exports.
• C)impose exchange controls or capital controls.
• D)use monetary or fiscal policies to reduce domestic spending.

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Definitions:

Profits And Losses

Financial results indicating the difference between a business's revenues and its costs over a period; profits indicate revenues exceed costs, whereas losses indicate the opposite.

Scarce Resources

Natural, human, and manufactured assets available in limited quantities that are used for the production of goods and services.

Highest Valued Uses

Refers to allocating resources or goods in a manner that maximizes utility or benefits for an individual or society.

Economic Profits

Profits exceeding the total opportunity costs of all resources used in production; also known as abnormal or supernormal profits.