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The Republic of Dahlia is highly dependent on imports for production and consumption. GDP growth and prices in Dahlia have been stagnating for the past
The Republic of Dahlia is highly dependent on imports for production and consumption. GDP growth and prices in Dahlia have been stagnating for the past two years. The government of Dahlia is also running a persistent budget deficit. Juan Tsao and his friend Daniel Jilek are discussing the possible steps that should be taken to expand output. Juan, a news anchor, thinks that Dahlia should join the currency union formed by its neighboring countries underthe Continental Union (CU) treaty. This, he claims, will allow Dahlia to increase output and boost trade. However, Daniel feels that Dahlia should remove the currency's dollar peg and allow it to float fully. In his view, currency unions are inflexible and would make the macroeconomic situation in Dahlia worse. Which of the following, if true, would weaken Juan's claim? options: Dahlia pulled out of the CU formation negotiations two years back. Interest rates cannot be set independently by any individual country under the CU. The government of Dahlia recently provided a tax rebate in orderto boost consumption. Dahlia's neighboring countries are structurally and culturally similar to Dahlia. CU members have very higher external tariffs toward non-member nations
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