Under a fixed exchange rate system,the central bank of a country experiencing a balance of payments deficit will:

Question

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Under a fixed exchange rate system, the central bank of a country experiencing a balance of payments deficit would want to prevent currency depreciation. To do this, they would need to increase the demand for the domestic currency. This could be done through measures such as raising interest rates or implementing tighter monetary policy. Increasing the supply of the domestic currency would lead to a depreciation of the currency, which is not the desired outcome.

Under a Fixed Exchange Rate System,the Central Bank of a Country