Anticipating the outcome of a peg, economists believe the stable condition is a situation in which combinations of investor beliefs and government actions coincide. Such a condition is called:
A) exchange rate harmony.
B) a firm peg.
C) a contingent peg.
D) a self-confirming equilibrium.

Question

Quizplus · Accepted Answer

The stable condition described in the question is a self-confirming equilibrium, which refers to a situation where everyone’s beliefs about what other people will do coincides with what those other people actually do. This creates a reinforcing cycle where everyone continues to act in the same way, allowing for the stability of the peg to be maintained.

Anticipating the Outcome of a Peg, Economists Believe the Stable