Under a fixed exchange rate system, an excess demand for the Australian dollar in the FOREX market often resulted in:

Question

Quizplus · Accepted Answer

Under a fixed exchange rate system, an excess demand for the Australian dollar in the FOREX market would lead the central bank to sell foreign currency reserves to buy Australian dollars, increasing the money supply in the economy. This increase in money supply boosts liquidity in the financial system, which typically leads to a fall in interest rates.

Under a Fixed Exchange Rate System, an Excess Demand for the Australian