In a Fixed Exchange Rate System

question 88

Multiple Choice

In a fixed exchange rate system,

• A)Excess demand for a currency is eliminated by using foreign exchange reserves to increase demand.
• B)A country can eliminate a surplus of its currency by eliminating its protectionist barriers to trade.
• C)The capital account surpluses must offset current account deficits.
• D)A balance-of-payments deficit can be corrected by expansionary fiscal and expansionary monetary policies.A surplus or shortage of currency can be eliminated by allowing the currency's value to be determined by the forces of supply and demand.

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Definitions:

Porcupines

Spiny mammals known for their unique defense mechanism of erecting sharp quills to deter predators.

Hedgehogs

Small, spiny mammals known for their unique protective quills and habits of foraging for food at night.

Analogy

Evaluating two things side by side with the goal of elucidating or illuminating aspects of each.

Cursive

A style of penmanship where characters are written joined together in a flowing manner, often for the purpose of faster writing.