In October 2008, Icelandʹs central bank increased its lending rate to 18% in an ʺeffort to prop up the countryʹs frozen currency and markets ʺ www.nytimes.com, October, 29, 2008)
As a result, the _________ and demand curve for Icelandic krona shifted__________ , holding all else the same.

Question

In October 2008, Icelandʹs central bank increased its lending rate to 18% in an ʺeffort to prop up the countryʹs frozen currency and markets ʺ www.nytimes.com, October, 29, 2008)
As a result, the _________	and demand curve for Icelandic krona shifted__________ , holding all else the same.

Quizplus · Accepted Answer

When Iceland's central bank increased its lending rate, the interest rate differential between U.S. and Icelandic interest rates increased. This would cause investors to demand more Icelandic krona in order to earn a higher return on their investments. Hence, the demand curve for Icelandic krona would shift rightward, while the supply curve would remain unchanged.

In October 2008, Icelandʹs Central Bank Increased Its Lending Rate