Scenario: Gizmovia The Republic of Gizmovia wants to maintain the exchange rate of its currency, the gizmo, at $0.50, but the current exchange rate for the gizmo is $0.40. If Gizmovia uses monetary policy to bring the exchange rate for the gizmo to $0.50, it should _____ interest rates, which will _____ capital inflows of gizmos.

Question

Quizplus · Accepted Answer

Increasing interest rates makes investing in Gizmovia more attractive, leading to increased capital inflows, which can help raise the value of the gizmo.

Scenario: Gizmovia the Republic of Gizmovia Wants to Maintain the Exchange