If a Country Wants to Keep the Value of Its

question 17

Multiple Choice

If a country wants to keep the value of its currency fixed, then its central bank should

• A) sell domestic goods when there is an increase in the supply of its domestic currency.
• B) buy domestic goods when there is an increase in the supply of its domestic currency.
• C) sell its domestic currency when there is an increase in the supply of that currency.
• D) buy its domestic currency when there is an increase in the supply of that currency.

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Definitions:

Productive Efficiency

A situation in which a good or service is produced at the lowest possible cost and with the optimal combination of inputs.

Coordination Problem

A challenge faced by individuals or organizations when their interests conflict, requiring them to align their actions or decisions to achieve a common goal.

Incentive Problem

A situation where the incentives or motivations available to individuals or firms do not align with broader economic, social, or organizational goals, potentially leading to suboptimal outcomes.

Central Planning

An economic system where the government makes all decisions about the production and distribution of goods and services, controlling resources and directing activities.