Suppose the Government of New Country Has Fixed the Value

Multiple Choice

Suppose the government of New Country has fixed the value of its currency, the New Peso, at $1 per New Peso, but the market equilibrium value of the New Peso is $2 per New Peso. In order to maintain the official value of the New Peso the Central Bank of New Country must either ________ domestic interest rates, or ________ the supply of New Pesos by purchasing or increasing their holding of international reserves.

A) raise; increase
B) raise; decrease
C) lower; decrease
D) lower; increase