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7. Many countries experiencing high and rising inflation, or even hyperinflation, will adopt a fixed exchange rate regime. What are the potential costs and benefits
7. Many countries experiencing high and rising inflation, or even hyperinflation, will adopt a fixed exchange rate regime. What are the potential costs and benefits of a fixed exchange rate regime in this case? Consider fiscal discipline, seigniorage, and expected future inflation. (4point) The question is not available for copy/paste. 8. In the late 1990s, several East Asian economies had their currencies pegged to the U.S. dollar. Suppose there is an economic boom in the United States that leads to an increase in U.S. interest rates. At the same time, investors begin to worry that the East Asian economies will be unable to maintain their exchange rate pegs. How could policymakers in these countries respond? Discuss how the trilemma applies to this situation. (4point) The question is not available for copy/paste. 9. In the late 1970s, several countries in Latin America, notably Mexico, Brazil, and Argentina, had accumulated large external debt burdens. A significant share of this debt was denominated in U.S. dollars. The United States pursued contractionary monetary policy from 1979 to 1982 , raising dollar interest rates. How would this affect the value of the Latin American currencies relative to the U.S. dollar? How would this affect their external debt in local currency terms? If these countries had wanted to prevent a change in their external debt, what would have been the appropriate policy response, and what would be the drawbacks? (6point)
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