Which method would the central bank NOT use to keep the exchange value of its currency fixed?
A) It would purchase its own currency for foreign reserves when the domestic credit expanded.
B) It would ensure that the domestic money supply remained constant.
C) It would sell its own currency for foreign reserves when domestic credit contracted.
D) It would ensure that the domestic money supply increased to maintain uncovered interest and PPP.

Question

Quizplus · Accepted Answer

Maintaining uncovered interest and PPP requires adjusting the exchange value of the currency, so this method would not be used to keep the exchange value fixed. The other options, such as purchasing or selling currency for foreign reserves, and controlling the domestic money supply, are all common methods used by central banks to maintain a fixed exchange rate.

Which Method Would the Central Bank NOT Use to Keep