If an economy with a fixed exchange rate system is faced with a rising trade deficit, which of the following will occur?

Question 38 options:

1)

Central bank will use foreign reserves to buy domestic currency in order to prevent the domestic currency from depreciating.

2)

Central bank will increase money supply in order to prevent the domestic currency from appreciating.

3)

Central bank will use domestic currency to buy foreign currency in order to prevent the domestic currency from appreciating.

4)

All of the above.