A central bank's attempt to prevent an appreciation of its currency can stimulate domestic inflation if the ________ of foreign currencies leads to ________ international reserves which ________ the monetary base.

Question

Quizplus · Accepted Answer

When a central bank purchases foreign currencies to prevent its own currency from appreciating, it increases its international reserves. This action, in turn, increases the monetary base, which can stimulate domestic inflation.

A Central Bank's Attempt to Prevent an Appreciation of Its