Which of the following is correct?
A) If a nation changes its money supply, it disrupts the long-run PPP equilibrium, which causes traders to purchase in the cheaper markets and sell in the pricier markets, which, in turn, causes demand for the domestic currency (vis-à-vis the international currency) to be lower.
B) The peg changes the long-run expectation of exchange rates, and this is a determinant of short-run rates which, in turn, affect deposit rates of return.
C) The Federal Reserve has complete control of monetary policy; it is independent of political control, so, in the United States at least, monetary policy can coexist with an exchange rate peg.
D) Pegging its own currency causes a nation to lose political control, and it is then forced to sell its own resources at world prices.
Correct Answer:
Verified
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