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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 $0.40.
-(Scenario: Gizmovia)Refer to Scenario: Gizmovia.If Gizmovia uses exchange market intervention to increase 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

In order to increase the value of its currency, Gizmovia needs to buy gizmos and sell dollars in the foreign exchange market. By buying more gizmos, the demand for the currency increases, causing its value to increase, while selling dollars decreases the supply of dollars in the market, making it more valuable relative to the gizmo. Therefore, choice C, buy gizmos and sell dollars, is the correct answer.

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