Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Decreased consumer spending
B
Increased consumer savings
C
Higher inflation
D
Currency depreciation
Understanding the Answer
Let's break down why this is correct
Answer
When a central bank increases interest rates, it often leads to currency appreciation because higher rates attract foreign investors looking for better returns on their investments. Similarly, when a government increases taxes, it can lead to a decrease in consumer spending and investment, which might result in a weaker economy. This weaker economic outlook can lead to a depreciation of the currency, as investors may move their money elsewhere. For example, if a country raises taxes significantly, people may spend less, and businesses may slow down, making the currency less attractive to investors. In both cases, the changes in interest rates and taxes influence how investors view the strength and stability of the currency.
Detailed Explanation
When taxes go up, people have less money to spend. Other options are incorrect because Some might think higher taxes mean people save more; People might believe that higher taxes cause prices to rise.
Key Concepts
Currency Appreciation Mechanisms
Monetary Policy
Inflation Control
Topic
Currency Appreciation Mechanisms
Difficulty
easy level question
Cognitive Level
understand
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