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If Rising Inflation in an Economy with Fixed Exchange Rates

Question 18

Multiple Choice

If rising inflation in an economy with fixed exchange rates puts downward pressure on the value of the currency, what action must the government take to maintain fixed exchange rates?


A) lower interest rates to attract more borrowers to the country
B) buy up more foreign currency, using money that it prints
C) print more domestic currency to maintain an adequate supply of money
D) buy up its own currency using foreign reserves

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