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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

A central bank can allow its currency to fall indefinitely, but it cannot allow its currency to rise indefinitely. Why not?

To determine

A central bank can allow its currency to fall indefinately but cannot allow it to rise.

Explanation

A central bank can decrease or depriciate the value of the currency in foreign exchnage market by increasing the supply of domestic currency in the exchange market. To increase the supply, the bank can print currency as much as it likes. But, to rise the value or appreciate the value of currency, central bank need to decrease the supply of currency in the foreign exchange market...

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