If Mexico dollarizes its economy,it essentially
A) Allows the Federal Reserve to be its lender of last resort
B) Accepts the monetary policy of the Federal Reserve
C) Ensures that its business cycle was identical to that of the U.S.
D) Abandons its ability to run governmental balanced budgets

Question

Quizplus · Accepted Answer

Dollarizing the economy means adopting the U.S. dollar as the official currency, which would entail accepting the monetary policy of the Federal Reserve. This would mean that Mexico would give up control of its monetary policy and interest rates to the Federal Reserve. It does not necessarily ensure that the business cycle would be identical to the U.S. or that Mexico would abandon its ability to run governmental balanced budgets. The Federal Reserve would not become Mexico's lender of last resort as Mexico would no longer have its own monetary policy.

If Mexico Dollarizes Its Economy,it Essentially