When a Nation Is Maintaining an Exchange Rate Peg, Its

question 62

Multiple Choice

When a nation is maintaining an exchange rate peg, its money supply is typically backed by:

• A) gold.
• B) nothing.
• C) domestic bonds and foreign exchange assets purchased with the national currency.
• D) domestic credit only.

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Definitions:

Strong Axiom

A mathematical condition used in decision theory and economic models that strengthens the requirements for consumer choice consistency over time or across different conditions.

Revealed Preference

A theory that determines consumer's preferences by observing their purchasing habits and behaviors instead of their preferences being explicitly stated.

Revealed Preference

A theory that assumes individuals' preferences can be determined by their purchasing habits.

Weak Axiom

A principle in consumer choice theory stating that if a consumer prefers bundle A over bundle B when both are available at the same prices, then the consumer will not purchase more of bundle B if its price rises.