Under a Fixed Exchange Rate System, the Government Bears the Responsibility

question 61

Multiple Choice

Under a fixed exchange rate system, the government bears the responsibility to ensure that the BOP is near zero. If the sum of the current and capital accounts do not approximate zero, the government is expected to intervene in the foreign exchange market by buying or selling official foreign exchange reserves. If the sum of the first two accounts is GREATER THAN ZERO, a ________ demand for the domestic currency exists in the world. To preserve the fixed exchange rate, the government must then intervene in the foreign exchange market and ________ domestic currency for foreign currencies or gold so as to bring the BOP back near zero.

• A) surplus; sell
• B) surplus; buy
• C) deficit; sell
• D) deficit; buy

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Definitions:

Depth Psychologies

An approach to psychology that emphasizes the exploration of the unconscious mind and its influence on behavior and personality.

Unconscious Mind

Part of the mind that is inaccessible to the conscious mind but affects thoughts and behaviors.

Psychodynamic Theorists

Experts who focus on the role of unconscious psychological processes and childhood experiences in shaping personality and behavior.

Interrelational Patterns

The recurring ways individuals interact and relate to each other within various types of relationships.