In 2020, the Central Bank of Faunaland increased the money supply growth by 8%, whereas the Central Bank of Gregoria allowed a relatively low money growth of 2%. Faunaland also experienced a relatively high output growth of 4%, whereas Gregoria had relatively robust output growth of 6%. Suppose the Central Bank of Gregoria wants to maintain an exchange rate peg with the currency of Faunaland. What money growth rate would the Central Bank of Gregoria have to choose to keep the value of the currency of Gregoria fixed relative to the currency of Faunaland? For this question, use the simple monetary model, where L is constant. a. 4% b. 6% c. 8% d. 10%
In 2020, the Central Bank of Faunaland increased the money supply growth by 8%, whereas the Central Bank of Gregoria allowed a relatively low money growth of 2%. Faunaland also experienced a relatively high output growth of 4%, whereas Gregoria had relatively robust output growth of 6%. Suppose the Central Bank of Gregoria wants to maintain an exchange rate peg with the currency of Faunaland. What money growth rate would the Central Bank of Gregoria have to choose to keep the value of the currency of Gregoria fixed relative to the currency of Faunaland? For this question, use the simple monetary model, where L is constant. a. 4% b. 6% c. 8% d. 10%
Chapter19: The International Monetary System: Order Or Disorder
Section: Chapter Questions
Problem 8DQ
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In 2020, the Central Bank of Faunaland increased the money supply growth by 8%, whereas the Central Bank of Gregoria allowed a relatively low money growth of 2%. Faunaland also experienced a relatively high output growth of 4%, whereas Gregoria had relatively robust output growth of 6%. Suppose the Central Bank of Gregoria wants to maintain an exchange rate peg with the currency of Faunaland. What money growth rate would the Central Bank of Gregoria have to choose to keep the value of the currency of Gregoria fixed relative to the currency of Faunaland? For this question, use the simple monetary model, where L is constant.
a. 4%
b. 6%
c. 8%
d. 10%
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