Scenario: Gizmovia The Republic of Gizmovia wants to maintain the exchange rate of its currency, the gizmo, at $0.50, but the current exchange rate for the gizmo is $0.40. If Gizmovia uses foreign exchange controls, it should require licenses to _____ gizmos and _____ dollars.

Question

Quizplus · Accepted Answer

To maintain or increase the value of the gizmo, Gizmovia would need to reduce the supply of gizmos in the foreign exchange market and increase the supply of dollars. Requiring licenses to sell gizmos would limit the outflow of gizmos, and requiring licenses to buy dollars would limit the inflow of dollars, both actions supporting the desired exchange rate.

Scenario: Gizmovia the Republic of Gizmovia Wants to Maintain the Exchange