In an economy with a _________ exchange rate but no private ______________, financing a balance of payments surplus requires that foreign exchange reserves must increase.
A) flexible, capital flows
B) fixed, capital flows
C) fixed, income flows
D) flexible, income flows

Question

Quizplus · Accepted Answer

In a fixed exchange rate system without private capital flows, a balance of payments surplus would lead to an increase in foreign exchange reserves, as the central bank would buy the excess foreign currency to maintain the fixed exchange rate.

In an Economy with a _________ Exchange Rate but No