Suppose There Are Two Countries That Decide to Peg the Exchange

question 50

Multiple Choice

Suppose there are two countries that decide to peg the exchange rate at its current rate, which of the following must be true in the short run?

• A) Output growth rates must be equal in the two countries.
• B) Price levels must be equal in the two countries.
• C) Inflation rates must be equal in the two countries.
• D) The real exchange rates between the two countries will be equal.
• E) The interest rates must be equal in the two countries.

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Definitions:

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