To counter a speculative attack on an overvalued currency, the monetary policymakers must ________ monetary policy and to fight a recession the monetary policymakers must ________ monetary policy.
A)tighten; tighten
B)tighten; ease
C)ease; ease
D)ease; tighten

Question

Quizplus · Accepted Answer

A speculative attack is a massive selling of domestic currency assets by domestic and foreign financial investors, which increases the supply of a currency. To maintain the fixed rate, the government must therefore increase the demand for the nation's currency by tightening monetary policy and raise domestic interest rates. On the other hand, monetary policy should be eased and interest lowered if aimed at increasing investment and aggregate demand in a recession.

To Counter a Speculative Attack on an Overvalued Currency, the Monetary