Although the pegged exchange rate between the yuan and the dollar has ________ the yuan,China had been reluctant to abandon the peg for fear that abandoning the peg would ________.
A)undervalued; reduce exports
B)undervalued; reduce imports
C)overvalued; increase imports
D)overvalued; reduce exports

Question

Quizplus · Accepted Answer

The first blank requires an adjective to qualify the pegged exchange rate between the yuan and the dollar. China has been accused of pegging the yuan at an undervalued rate, which makes its exports cheaper and more competitive in international markets. Therefore, the correct adjective is "undervalued." The second blank needs a phrase that describes the consequence of abandoning the peg. If China were to abandon the peg, the value of the yuan would appreciate, making its exports more expensive and less competitive. Therefore, the correct phrase is "reduce exports." Choice A is the only option that provides the correct adjectives and the best outcome of the abandoning of the peg.

Although the Pegged Exchange Rate Between the Yuan and the Dollar