A . What are foreign exchange reserves? b. What actions can a government take if it exhausts its foreign exchange reserves?
a . Foreign exchange reserves are a government's holdings of foreign currencies used to support its own
currency's exchange rate at a fixed level.
b. It can devaluate its currency. This lowers the nation's exchange rate, making its currency worth
less in the foreign exchange market. It can impose import controls in order to shift the economy's
demand curve to the left in order to reach an equilibrium exchange rate equal to the fixed exchange
rate. It can impose exchange controls, whereby exporters must turn their foreign exchange over to the
government at the fixed exchange rate. Finally, it can borrow enough currency from the IMF to cover
the country's excess demand for that currency.
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If the number of people in the labor force ________, then ________
A) increases; the labor force participation rate increases B) increases; the unemployment rate definitely increases C) decreases; the unemployment rate definitely decreases D) decreases; the labor force participation rate increases E) decreases, the unemployment rate does not change
The minimum wage is more often binding for teenagers than for other members of the labor force
a. True b. False Indicate whether the statement is true or false