Under an Exchange-Rate Targeting Rule for Monetary Policy,a Crawling Peg

question 96

Multiple Choice

Under an exchange-rate targeting rule for monetary policy,a crawling peg

• A)fixes the value of the domestic currency to a commodity such as gold.
• B)fixes the value of the domestic currency to that of a large,low-inflation country.
• C)allows the domestic currency to depreciate at a steady rate so that inflation in the pegging country can be higher than that of the anchor country.
• D)allows the domestic currency to depreciate at a steady rate so that inflation in the pegging country can be lower than that of the anchor country.

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Definitions:

Long Run

A period in economics where all factors of production and costs are variable, and firms can adjust all inputs according to market demands.

Arc Elasticity

A method for calculating elasticity between two points on a demand curve using the midpoint formula.

Wheat Demand

The total quantity of wheat that consumers are willing and able to purchase at a given price level.

Price Elasticity of Demand

A measure of the responsiveness of the quantity demanded of a good to a change in its price.