Scenario: Gizmovia II 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 $0.75. If Gizmovia uses foreign exchange controls, it should require licenses to _____ gizmos and _____ dollars.

Question

Quizplus · Accepted Answer

Gizmovia wants to maintain the exchange rate of its currency at $0.50, but the current exchange rate is $0.75. This means that the gizmo is overvalued. To correct this, Gizmovia should require licenses to buy gizmos and sell dollars. This will reduce the demand for gizmos and increase the demand for dollars, which will drive the exchange rate down to $0.50.

Scenario: Gizmovia II the Republic of Gizmovia Wants to Maintain