Suppose Country a Pegs Its Nominal Exchange Rate to Country

question 24

Multiple Choice

Suppose country A pegs its nominal exchange rate to country B, and that country A has a higher inflation rate than country B. In this situation, country A will experience:

• A) a worsening trade position.
• B) an increase in the real exchange rate.
• C) a decrease in domestic demand.
• D) All of the above.
• E) None of the above.

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