Which of the following methods can a country use to accumulate precautionary savings?
A) an increase in taxes
B) a reduction of government expenses
C) an accumulation of foreign exchange reserves by central banks
D) a reduction in unemployment benefits

Question

Quizplus · Accepted Answer

Accumulating foreign exchange reserves is a common method used by countries to accumulate precautionary savings. This involves building up a stockpile of foreign currencies, which can be used to help support the domestic currency in times of economic volatility. This can provide a source of stability and confidence for investors, and can help to prevent financial crises from spiraling out of control. Options A, B, and D are not effective ways of accumulating precautionary savings, as they involve reducing government revenue or expenditure, which can in turn reduce the country's capacity to respond to economic fluctuations.

Which of the Following Methods Can a Country Use to Accumulate