To stop a speculative attack interest rates must be ________, which will ________ aggregate demand.
A)increased; increase
B)increased; decrease
C)decreased; decrease
D)decreased; increase

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 increase domestic interest rates. However, higher interest rates discourage investment and therefore decrease aggregate demand.

To Stop a Speculative Attack Interest Rates Must Be ________