A Central Bank's Attempt to Prevent an Appreciation of Its

question 13

Multiple Choice

A central bank's attempt to prevent an appreciation of its currency can stimulate domestic inflation if the ________ of foreign currencies leads to ________ international reserves which ________ the monetary base.

• A)purchase;higher;increases
• B)purchase;lower;decreases
• C)sale;lower;decreases
• D)sale;higher;increases

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Definitions:

Increase

An upward movement in quantity, price, or value.

Increase in Supply

A situation where the quantity of a good or service that producers are willing to supply at a given price rises.

Increase in Demand

A situation where consumers are willing and able to purchase more of a good or service at each possible price, often depicted by a rightward shift in the demand curve.

Decrease

A reduction in size, number, value, or extent.