Asymmetric Shocks Pose a Problem for Nations Linked by Fixed

question 78

Multiple Choice

Asymmetric shocks pose a problem for nations linked by fixed exchange rates to a base currency. In general:

• A) the home nation always has a better outcome than its foreign trading partner.
• B) both nations share a common currency and so will experience equal results.
• C) when the base currency nation takes any action to counteract the shock, it forces its exchange rate partner to do the same to maintain its peg.
• D) both nations only get half the benefit of any economic policy.

Comprehend the significance of policy credibility and time inconsistency in economic policy.

Grasp the views and conclusions of the rational expectations school regarding monetary and fiscal policy.

Identify factors that can influence the effectiveness of fiscal and monetary policies in adjusting economic fluctuations.

Recognize the debate surrounding inflation targeting and its impact on different economic objectives.

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