Solve 25 and 26

25. The monetary authority of The Stoddard Islands will exchange its currency for U.S. dollars at a one-for-one ratio. As a result, the exchange rate of the Stoddard Islands currency with the U.S. dollar is 1.00, and many businesses in the Islands will accept U.S. dollars in This exchange rate regime is best described as: A. a fixed peg B. dollarization. C. a currency board. Hint: The country has not fomally dolarized because it continues to issue a domestic currency, A conventional fixed peg allows for a small degree of fluctuation around the target exchange rate. A currency board arrangement is an explicit commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate 26. A devaluation of a country's currency to improve its trade deficit would most likely benefit a producer of A. export goods that have no close substitutes. B. an export good that represents a relatively small proportion ofconsumer expenditures C. luxury goods for export. Hint: A devaluation of the currency will reduce the price of export goods in foreign currency terms. The greatest benefit would be to producers of goods with more elastic demand. Luxury goods tend to have higher elasticity of de mand, while goods that have no close substitutes or represent a small proportion of consumer expenditures tend to have low elasticities of demand