What is the effect of a monetary contraction in a fixed exchange rate system?
A) It forecasts low interest rates.
B) It increases the demand for money.
C) It puts downward pressure on a fixed exchange rate.
D) It leads to an inflow of money from abroad.
E) It can lead to high price inflation.

Question

Quizplus · Accepted Answer

A monetary contraction in a fixed exchange rate system typically leads to higher interest rates, attracting foreign capital and causing an inflow of money from abroad to maintain the fixed exchange rate.

What Is the Effect of a Monetary Contraction in a Fixed