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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.
-(Scenario: Gizmovia II) Look at the scenario Gizmovia II. If Gizmovia uses exchange market intervention to decrease the value of its currency to $0.50, it should _____ gizmos and _____ dollars in the foreign exchange market.

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Quizplus · Accepted Answer

To decrease the value of its currency, Gizmovia must sell gizmos in the foreign exchange market in exchange for foreign currency (dollars). Therefore, the correct choice is to sell gizmos and buy dollars, which is represented by option B.

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