To maintain a fixed exchange rate,authorities
A) make laws stipulating the exchange rate.
B) modify money supply.
C) modify government expenses.
D) modify taxes.

Question

Quizplus · Accepted Answer

To maintain a fixed exchange rate, authorities typically modify the money supply. By buying and selling their own currency on the foreign exchange market, they can influence its price relative to other currencies and keep the exchange rate stable. This often involves adjusting interest rates and/or foreign exchange reserves as well. Laws may be used to enforce the exchange rate, but they are not sufficient on their own to maintain it. Government expenses and taxes can also affect the economy and exchange rate, but are not necessarily used specifically to maintain a fixed exchange rate.

To Maintain a Fixed Exchange Rate,authorities