Suppose country A pegs its nominal exchange rate to country B and that country A has a higher inflation rate than country B.In this situation,country A will experience

Question

Quizplus · Accepted Answer

Country A will experience a real appreciation because its higher inflation rate makes its goods more expensive relative to country B's. This can worsen its trade position as exports become less competitive, and the real exchange rate increases as the nominal rate is fixed but prices rise faster in country A.

Suppose Country a Pegs Its Nominal Exchange Rate to Country