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Exam Code: ACA-Sec1

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Certification Provider: Alibaba

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NEW QUESTION: 1
If the government of a country uses its foreign currency reserves to <List As its own currency in the foreign currency market, the effect is to <List B. domestic aggregate demand.

A. Option B
B. Option A
C. Option C
D. Option D
Answer: A
Explanation:
Aggregate demand is the amount of real domestic output that domestic consumers. Foreign buyers, governments, and businesses will want to purchase at each price level.
One factor that changes aggregate demand is net export spending. Exchange rates are among the determinants of net export spending. When a government intervenes in the foreign currency market to purchase its own currency. it causes an appreciation of that currency. One result is that the trade balance will be affected. Exports will fall as domestic goods become more costly from the perspective of foreign consumers. Imports will rise as foreign goods become less costly for domestic consumers. Consequently, net exports will decline and domestic aggregate demand will also decline.


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