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-In the Above Figure, Suppose the Demand for Dollars Temporarily

Question 125

Multiple Choice

-In the above figure, suppose the demand for dollars temporarily increases so that the demand curve shifts to D<sub>1</sub>. To maintain the target exchange rate, the Reserve Bank A) must violate interest rate parity but not purchasing power parity. B) can sell dollars. C) can buy dollars. D) The Reserve Bank cannot maintain the target exchange rate.
-In the above figure, suppose the demand for dollars temporarily increases so that the demand curve shifts to D1. To maintain the target exchange rate, the Reserve Bank


A) must violate interest rate parity but not purchasing power parity.
B) can sell dollars.
C) can buy dollars.
D) The Reserve Bank cannot maintain the target exchange rate.

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