Government policy-makers can respond to an overvalued currency in each of the following ways EXCEPT by

Question

Quizplus · Accepted Answer

Increasing the official value of the currency would not address the problem of an overvalued currency but rather exacerbate it. This would make the currency even more expensive in the foreign exchange market, leading to a further appreciation and making goods and services less competitive in international markets. Therefore, policy-makers can respond to an overvalued currency by devaluing the currency, restricting international transactions, becoming a demander of the currency in the foreign exchange market, or tightening monetary policy.

Government Policy-Makers Can Respond to an Overvalued Currency in Each