Question

How does an expansionan expansion in the central​ bank's domestic assets ultimately affect its balance sheet under a fixed exchange​ rate? A. It leads to an equal fallfall in liabilities. B. It leads to an equal fallfall in foreign​ assets, without change in liabilities. C. It leads to an equal increaseincrease in foreign liabilities. D. It leads to an equal increaseincrease in domestic liabilities.

Answer 1

Option D

Step-by-step explanation:

In simple words, A determined currency rate, also called a fixed currency value, refers to the form of exchange rate regimes during which a currency agency sets or pegs the value of the currency against both the value of yet another currencies, a combination of other currencies, or another value factor, like gold.

Thus, in order to keep the currency at a fixed level the monetary authority must increase their liability also but on a domestic level only as two accounts are considered to be separate in such systems.