Suppose foreign exchange markets anticipate a devaluation for country A. Further assume that policy makers in country A will continue to fix its nominal exchange rate. In order to peg the currency at its original level, which of the following must occur?
A) increase the domestic interest rate
B) increase the domestic price level
C) convince trading partners to raise their interest rates
D) all of the above
E) none of the above
Question 2
If endogenous growth models are correct, a lower rate of growth in the long run could occur as a result of which of the following?
A) a lower rate of saving
B) a lower rate of depreciation
C) a redefinition of depreciation
D) a redefinition of the steady state
E) none of the above
Cation binding and exchange.
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