Suppose foreign exchange markets anticipate a revaluation for country A. Further assume that policy makers in country A will continue to fix its nominal exchange rate. In order to peg the currency at its original level, which of the following must occur?

A) Increase the domestic interest rate.
B) Increase the domestic price level.
C) Convince trading partners to raise their interest rates.
D) all of the above
E) none of the above

 

ANSWER:

B