If a country has a currency board arrangement (with a 100 percent reserve system) in Place, then the country's money supply can be increased by a __________ by the Country's central bank.
A) purchase of domestic assets from domestic citizens.
B) purchase of foreign (external) assets from domestic citizens.
C) sale of domestic assets to domestic citizens.
D) sale of foreign (external) assets to domestic citizens.

Question

Quizplus · Accepted Answer

A currency board arrangement typically means the country's central bank can only issue or withdraw its currency in exchange for a foreign reserve currency at a fixed exchange rate. Therefore, the money supply can be increased by purchasing foreign assets from domestic citizens, as this action would bring more of the foreign reserve currency into the central bank's reserves, allowing it to issue more of its own currency.

If a Country Has a Currency Board Arrangement (With a 100