Why might a developing country choose to peg the value of its currency to the dollar?
What will be an ideal response?
The dollar is a relatively stable currency, so by pegging the value of a country's currency to the dollar, the country provides reassurance that debts will be paid in a currency whose value doesn't fluctuate dramatically. This reduces the risk foreigners face in collecting returns on investments in that country. In addition, if imports are a significant fraction of the goods consumers buy, a decrease in the value of the country's currency can result in higher inflation. By pegging the country's currency, these fluctuations in the exchange rate don't occur, so inflation may be lower.
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Which of these is an example of depreciation?
(A) A clothing store owner reduces the price of a belt by $10 to encourage sales. (B) A worker's truck breaks down more often after 80,000 miles of driving. (C) An employer fires a worker for repeatedly arriving late to work. (D) A share of stock declines in value over several months.
In a perfectly competitive market the term "price taker" applies to
A) sellers but not buyers. B) only the smallest sellers and buyers. C) buyers but not sellers. D) sellers and buyers.