A central bank in an economy chooses to increase interest rates so that it can draw in capital inflows and strengthen the financial account of the balance of payments. In which situation is the central bank’s decision least likely to work?
- Awhen the currency of the economy is expected to lose its value
- Bwhen the economy is politically and economically stable
- Cwhen the interest rate of the economy is higher than that of other countries
- Dwhen the reserves of foreign currencies held by the central bank are high and rising