To maintain a fixed exchange rate under a shortage of FX reserves, the government has the following options, except
A)encourage foreign investment inflows, and restrict foreign investment outflows.
B)encourage imports, and discourage exports.
C)impose exchange controls or capital controls.
D)use monetary or fiscal policies to reduce domestic spending.

Question

Quizplus · Accepted Answer

Encouraging imports and discouraging exports would worsen the shortage of foreign exchange reserves by increasing the demand for foreign currency to pay for imports and reducing the inflow of foreign currency from exports.

To Maintain a Fixed Exchange Rate Under a Shortage of FX