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.