If a central bank does not want to see its currency ________ in value,it may pursue contractionary monetary policy to raise the domestic interest rate,thereby ________ its currency.

Question

Quizplus · Accepted Answer

Contractionary monetary policy, which involves raising interest rates, is typically used to reduce inflation and can lead to an appreciation of the currency. Higher interest rates attract foreign investors looking for higher returns, thus increasing demand for the currency and strengthening its value.

If a Central Bank Does Not Want to See Its