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ECONOMICS PLEASE HELP ME OUT !

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AreeB KhaN

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how can interest help achieve price stability or contolled inflation in an economy... this sort of question is expected to come in tomorrows paper 1 of economics.guys help me out with this , imma stuck wid this question for very long :(
 
Zohaib Sherazi

Zohaib Sherazi

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-High interest rate : More financial inflows and reduced outflows as local population puts money in local banks. Hence, reduction of local currency on the foreign exchange market. Therefore, exchange rate does not depreciate, keeping other factors the same. The result is there is reduced inflationary pressure which could have been built up if exchange rate depreciated and imports became expensive in domestic terms.
 
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