If a country has a collapsing currency due to large budget deficits financed by monetary expansion,the cure is to

Question

Quizplus · Accepted Answer

To combat a collapsing currency due to large budget deficits financed by monetary expansion, the best choice is to cut the deficit and raise interest rates. This will reduce the amount of currency in circulation, which will increase its value. Pegging the currency to something different may provide temporary relief but it is not a long-term solution. Defaulting on sovereign debt and restructuring the economy would have severe economic consequences. Increasing the rate of inflation to reduce the real value of government debt would only exacerbate the problem of a collapsing currency. Thus, the best option is to reduce the deficit and raise interest rates.

If a Country Has a Collapsing Currency Due to Large