Which of the following is true of monetary contraction in a fixed exchange rate system?
A)It requires low interest rates.
B)It increases the demand for money.
C)It puts downward pressure on a fixed exchange rate.
D)It leads to an inflow of money from abroad.
E)It can lead to high price inflation.

Question

Quizplus · Accepted Answer

Monetary contraction requires high interest rates (to reduce the demand for money). Higher interest rates lead to an inflow of money from abroad, which puts upward pressure on a fixed exchange rate.

Which of the Following Is True of Monetary Contraction in a Fixed