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Suppose That a Nation Has Adopted a Fixed Exchange Rate

Question 160

Multiple Choice

Suppose that a nation has adopted a fixed exchange rate with another country, and has a persistent trade deficit.What is most likely to happen?


A) a gradual increase in the value of its currency 
B) a gradual decrease in the value of its currency 
C) a "run" on its currency and a sudden appreciation 
D) a "run" on its currency and a sudden devaluation

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