In general, whenever the benefits of pegging outweigh the costs of a credible peg, what will the government always choose to do?

Question

Quizplus · Accepted Answer

Whenever the benefits of pegging, such as stability for trade and investment, outweigh the costs of a credible peg, such as restriction of monetary policy autonomy and potential for speculative attacks, the government is likely to choose to peg their currency. Therefore, the best choice is B. Depreciation and floating exchange rates are not always optimal, and purchasing more government bonds is not directly related to exchange rate policy.

In General, Whenever the Benefits of Pegging Outweigh the Costs