If the economy experiences an inflationary gap, a contractionary monetary policy will _______ interest rates and _______ exchange rates.

Name: If the economy experiences an inflationary gap, a contractionary monetary policy will _______ interest rates and _______ exchange rates.
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Question

Quizplus · Accepted Answer

A contractionary monetary policy typically involves increasing interest rates to reduce inflationary pressures. Higher interest rates tend to attract foreign capital, leading to an increase in exchange rates.

If the Economy Experiences an Inflationary Gap, a Contractionary Monetary