(Figure: Central Bank Balance Sheet) When an economy with a pegged exchange rate operates with the money supply backed 100% by reserves, it is at point __________ on the diagram, and the situation is known as __________.
A) Z; complete sterilization
B) B; modified fixed/float
C) M; freely floating system
D) X; currency board system

Question

(Figure: Central Bank Balance Sheet) When an economy with a pegged exchange rate operates with the money supply backed 100% by reserves, it is at point __________ on the diagram, and the situation is known as __________. 
A) Z; complete sterilization 
B) B; modified fixed/float 
C) M; freely floating system 
D) X; currency board system

Quizplus · Accepted Answer

The point where the money supply is backed 100% by reserves is at point X on the diagram, and this situation is known as a currency board system.

(Figure: Central Bank Balance Sheet) When an Economy with a Pegged