In October 2008, Iceland's central bank increased its lending rate to 18% in an "effort to prop up the country's frozen current and markets." (www.nytimes.com, October, 29, 2008) As a result, the ________ curve for Icelandic krona shifted ________, holding all else the same.

Question

Quizplus · Accepted Answer

Increasing the lending rate makes the currency more attractive to foreign investors due to higher returns on investments denominated in that currency, thus increasing the demand for the Icelandic krona.

In October 2008, Iceland's Central Bank Increased Its Lending Rate