Consider an Economy with a Fixed Exchange Rate and Money

question 10

Multiple Choice

Consider an economy with a fixed exchange rate and money supply equal to 2 billion pesos. The country has 1 billion in reserves and 1 billion in domestic credit. If the output in the country were to increase by 5%, then:

• A) the money demand would increase by 10%.
• B) the central bank would have to increase reserves by 5%.
• C) the central bank would have to decrease reserves by 5%.
• D) the central bank would have to decrease domestic credit.

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Definitions:

Surface

The outermost layer or boundary of an object or body, which can interact with the environment or other objects.

Oceans

Large bodies of salt water that cover most of the Earth's surface and play an essential role in the global climate and living habitats.

Billion Years Ago

A time scale used to describe events and processes that occurred a billion or more years ago in Earth's history.

Burgess Shale

A Lagerstätte in Canada in which there is a wealth of preserved fossils from the Cambrian period.