In 1990, Britain joined the ERM. If the German Bundesbank increased interest rates, what will Britain have to do in order to maintain its exchange rate peg?
A) The British would be forced to increase their interest rates.
B) The British would increase their money supply.
C) The British would have to lower their interest rates.
D) The British government would have to use expansionary fiscal policy.
Answer: A) The British would be forced to increase their interest rates.
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A) larger; larger B) larger; smaller C) smaller; larger D) smaller; smaller
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Indicate whether the statement is true or false
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