Deficits financed by borrowed money lead to inflation,and in a fixed or crawling peg exchange rate system,this leads to the real exchange rate being undervalued.

Question

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Deficits financed by borrowed money can lead to inflation, but in a fixed or crawling peg exchange rate system, this typically results in the real exchange rate being overvalued, not undervalued, because the domestic currency is kept at a higher value relative to foreign currencies than it would be in a free-floating system.

Deficits Financed by Borrowed Money Lead to Inflation,and in a Fixed