What Is the Long-Term Result of a Central Bank Fixing

question 109

Multiple Choice

What is the long-term result of a central bank fixing an exchange rate below the equilibrium market rate?

• A)The money supply will have to decrease resulting in inflation.
• B)The money supply will have to decrease resulting in deflation.
• C)The money supply will have to increase resulting in inflation.
• D)The money supply will have to increase resulting in deflation.
• E)The money supply will decrease but the price level will be unaffected.

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Definitions:

Aging Schedule

A table that shows the breakdown of accounts receivable into categories based on the length of time they have been outstanding.

Credit Policy

A credit policy is the set of guidelines that a company follows to determine the creditworthiness of customers and the terms of credit to offer.

Cash Balances

The amount of cash or cash equivalents that a company or an individual holds.

Compensating Balances

Minimum balances that a business must maintain in its bank account as part of a borrowing arrangement with the bank.