If a central bank wishes to "defend its currency," it might follow an expansive monetary policy, which would drive real rates of interest up.

Question

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If a central bank wishes to defend its currency, it might follow a contractionary monetary policy, which would drive real rates of interest up. Expansive monetary policy would have the opposite effect of lowering real rates of interest, which would not defend the currency.

If a Central Bank Wishes to "Defend Its Currency," It