Assume a country is in a fixed exchange rate regime. Explain what factors might cause individuals to expect that a country will devalue its currency
What will be an ideal response?
The currency might be viewed as overvalued. This could be caused by relatively higher rates of inflation in the country. Also, domestic macro conditions might call for a devaluation.
You might also like to view...
Which of the following is a reason why the growth rates of low-income countries can be higher than those of high-income countries?
a. Lower-income countries can observe the experience of those countries that have grown more quickly and can learn from it. b. Lower-income countries have a comparative advantage in the production of labor-intensive goods, which have higher terms of trade than capital-intensive goods. c. Lower-income countries have an abundant supply of rich natural resources. d. Lower-income countries can produce goods more cheaply than high-income countries as the average wage rate in low-income countries is lower than that in high-income countries.
The absolute price of a good is the price of that good in terms of another good
Indicate whether the statement is true or false