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, there was ________, holding all else the same.

Question

Quizplus · Accepted Answer

The central bank's action made it more expensive to borrow krona, which would reduce the quantity supplied of krona, holding all else the same. This would shift the supply curve for krona to the left.

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