Suppose the Country That Pegs Its Currency Has an Overvalued

question 63

Multiple Choice

Suppose the country that pegs its currency has an overvalued real exchange rate and that output is currently above the natural level of output.Which of the following will occur as the economy adjusts to this situation?

• A)P will decrease over time until Y = Yn.
• B)A reduction in the pegged value of the domestic currency will cause a leftward shift of the AD curve.
• C)Net exports will increase as the economy adjusts to this situation.
• D)Domestic goods will become less competitive as the economy adjusts by itself.
• E) none of the above

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