Under a Fixed-Exchange-Rate System, the Central Bank of a Small

question 55

Multiple Choice

Under a fixed-exchange-rate system, the central bank of a small open economy must:

• A) have a reserve of its own currency, which it must have accumulated in past transactions.
• B) have a reserve of foreign currency, which it can print.
• C) allow the money supply to adjust to whatever level will ensure that the equilibrium exchange rate equals the announced exchange rate.
• D) follow a rule specifying a constant growth rate for the money supply.

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