D3) About exchange rates (a) Suppose that a small country pegs the value of its currency with the U.S. dollar. If now the Fed raises the interest rate target of the U.S., how would it affect the monetary policy of the small country? (b) What are the disadvantages of exchange-rate targeting (or exchange-rate peg)?
D3) About exchange rates (a) Suppose that a small country pegs the value of its currency with the U.S. dollar. If now the Fed raises the interest rate target of the U.S., how would it affect the monetary policy of the small country? (b) What are the disadvantages of exchange-rate targeting (or exchange-rate peg)?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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D3)
About exchange rates
(a) Suppose that a small country pegs the value of its currency with the U.S. dollar. If now the Fed raises the interest rate target of the U.S., how would it affect the monetary policy of the small country?
(b) What are the disadvantages of exchange-rate targeting (or exchange-rate peg)?
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