A small, open economy with a fixed exchange rate system faces a balance of payments deficit due to a combination of high import levels and capital outflows. The central bank is using its foreign exchange reserves to support the fixed exchange rate, but these reserves are rapidly depleting. The government is considering policy options such as moving to a flexible exchange rate system, implementing capital controls, or seeking external financial assistance. In this case, the policy choices are primarily aimed at: A) Maintaining the fixed exchange rate at all costs B) Addressing the balance of payments deficit and stabilizing the exchange rate C) Completely closing off the economy from international trade D) Ignoring the balance of payments deficit
A small, open economy with a fixed exchange rate system faces a balance of payments deficit due to a combination of high import levels and capital outflows. The central bank is using its foreign exchange reserves to support the fixed exchange rate, but these reserves are rapidly depleting. The government is considering policy options such as moving to a flexible exchange rate system, implementing capital controls, or seeking external financial assistance.
In this case, the policy choices are primarily aimed at:
A) Maintaining the fixed exchange rate at all costs
B) Addressing the balance of payments deficit and stabilizing the exchange rate
C) Completely closing off the economy from international trade
D) Ignoring the balance of payments deficit
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