To offset an decreased demand for its currency, a government fixing its exchange rate

Question

Quizplus · Accepted Answer

If there is a decreased demand for a country's currency, then the value of the currency will go down. To fix this, the government could decrease the supply of the currency, which would make it more valuable and hopefully increase demand for it. Buying gold or other precious metals (Option A) would not necessarily help fix the exchange rate issue, and making it illegal to buy the currency (Option D) could have negative consequences for international trade. Decreasing the supply of the foreign currency (Option C) could help strengthen the country's currency, but it is not within the control of the government to directly reduce the supply of another country's currency.

To Offset an Decreased Demand for Its Currency, a Government