Which of the following is an argument of opponents of devaluations?
A) A devaluation causes a nation with fixed exchange rates to lose credibility in the medium run, driving its interest rate higher.
B) Participants in foreign exchange markets have a short memory: if the expected devaluation doesn't occur within a short time- period, they will stop expecting it.
C) Devaluations cause relatively slow adjustments.
D) Devaluations allow output to return to its natural level quickly.
E) Both B and C.

Question

Quizplus · Accepted Answer

A devaluation can lead to a loss of credibility for a nation with fixed exchange rates, which can result in higher interest rates as investors demand a premium for the increased risk.

Which of the Following Is an Argument of Opponents of Devaluations