If the Deutsche Mark and the British pound exchange rates are fixed, and the German Bundesbank conducts a tight monetary policy to counteract an expansion in German GDP, interest rates in Germany will ____, which will force Britain to ______.
A) fall; default
B) rise; raise its rates to maintain interest parity and the fixed exchange rate
C) fall; sell gold
D) rise; lower its rates to maintain interest parity and the fixed exchange rate
Ans: B) rise; raise its rates to maintain interest parity and the fixed exchange rate
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