In the absence of international capital controls, central banks set ________ to provide the correct incentive for speculators?
Correct answer: C. interest rates
- A. money supply targets
- B. income policy
- C. interest rates
- D. inflation targets
Explanation
With free international capital movement, central banks use interest rates to influence capital flows and provide incentives for speculators. Interest-rate differences attract funds toward higher-return currencies, subject to exchange-rate expectations.
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About Macroeconomics
The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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