If a central bank was to prevent its currency from depreciating, it would likely adopt a (an) ______ monetary policy to ______ the domestic interest rate, thus strengthening its currency.
A) contractionary, decrease
B) contractionary, increase
C) expansionary, decrease
D) expansionary, increase

Question

Quizplus · Accepted Answer

To prevent the currency from depreciating, the central bank would adopt a contractionary monetary policy, which involves increasing the domestic interest rate. This makes the currency more attractive to foreign investors, thus strengthening its value relative to other currencies.

If a Central Bank Was to Prevent Its Currency from Depreciating