If Two Nations Both Peg to a Center Nation, and One

question 68

Multiple Choice

If two nations both peg to a center nation, and one devalues its exchange rate against the other partner (cooperatively) and to the center as a result of a demand shock, what is the effect?

• A) The center nation will require that the two line up their rates.
• B) The devaluing nation will see an increase in demand while the other partner sees a decrease (thus sharing the impact of the demand shock).
• C) The devaluing nation will see a larger increase in demand while its partner will suffer more (thus favoring the devaluing nation).
• D) Both nations will suffer more because the center nation will match the devaluation, thus negating the effect.

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Definitions:

Direct Manufacturing Cost

Expenses directly associated with the production of goods, including labor and materials.

Units Produced

The aggregate count of finished products produced over a designated time frame.

Direct Manufacturing Cost

Expenses directly associated with the production of goods, including raw materials and direct labor costs.

Units Produced

The total number of complete items manufactured during a specific period.