If central bankers raise interest rates to curb inflation, they risk driving currency ____. If their interventions in the foreign exchange market drive the currency ____, they may boost inflation.
A) Up, up
B) Up, down
C) Down, down
D) Down, up

Question

Quizplus · Accepted Answer

Raising interest rates typically strengthens a currency, making imports cheaper and potentially lowering inflation. However, if central bankers intervene in the foreign exchange market to weaken their currency (driving it down), it can make imports more expensive and potentially increase inflation.

If Central Bankers Raise Interest Rates to Curb Inflation, They