In October 2008, Iceland's central bank increased its lending rate to 18% in an "effort to prop up the country's frozen currency and markets.

Question

Quizplus · Accepted Answer

When Iceland's central bank increased its lending rate, the interest rate differential between the U.S. and Icelandic interest rates increased, which led to a rightward shift in the demand for U.S. dollars and a leftward shift in the demand for Icelandic krona.

In October 2008, Iceland's Central Bank Increased Its Lending Rate