Explain why a exchange rate-based stabilization plan may result in a real appreciation?
What will be an ideal response?
Real appreciation may result for any of three reasons: first, persistent inflation due to say lagged wage indexation; second, lack of credibility of the policy; and third, productivity shifts due to inflation reduction or efficient reforms. See also Figure 22-3 for illustration in the case of Argentina, Chile, Brazil and Mexico. See also Chapter 15.
You might also like to view...
An increase in labor force participation will increase output and living standards at the cost of
a. higher taxes b. higher interest rates c. longer work weeks d. foregone leisure time e. higher exports
Economic theory
a. is a set of definitions, postulates, and principles assembled in a manner that helps make cause-and-effect relationships clear in economics. b. is like a guidebook in that it points out what to look for. c. provides economists with a common language and way of thinking about how the world works. d. is all of the above.