Once a Nation "Runs Out" of Reserves to Back the Currency

question 98

Multiple Choice

Once a nation "runs out" of reserves to back the currency, the peg cannot be maintained because:

• A) the supply of money grows uncontrollably at the same rate that the central bank monetizes deficits.
• B) the central bank cannot raise or lower the supply of money.
• C) the IMF will refuse to lend reserves to such a nation.
• D) the nation's currency is overvalued so that its exports diminish.

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