Which of the following best describes a situation in which a country buys domestic currency in order to defend a pegged exchange rate, and also uses a policy in the domestic economy in to prevent the domestic money supply from changing?

Question

Quizplus · Accepted Answer

This situation is called sterilized intervention, where a country buys domestic currency to maintain a pegged exchange rate while using a policy (such as open market operations) to prevent the domestic money supply from changing. This is done to avoid inflationary or deflationary pressures in the domestic economy that could arise from changes in the money supply.

Which of the Following Best Describes a Situation in Which