a. Assume a country is in a fixed exchange rate regime such as China, explain what factors might cause indiciduals to expect thata country will devalue its currency. Explain the various actions that policy makers can choose in response to this expected devaluation.
b. assume a country is in a fixed exchange rate regime. Now suppose that individuals expect that policy makers willdevalue its currency (yuan or renminbi)by more that 2% against its major composite currency index.
c. suppose the economy is operating below the natural level of output. Discuss the arguments for and against using devaluation in such a situation.
d. suppose the economy is initially operating above the natural level of output. In a fixed exchange rate regime, explain how the economy will adjust to this situation.
a. Assume a country is in a fixed exchange rate regime such as China, explain what factors might cause indiciduals to expect thata country will devalue its currency. Explain the various actions that policy makers can choose in response to this expected devaluation.
b. assume a country is in a fixed exchange rate regime. Now suppose that individuals expect that policy makers willdevalue its currency (yuan or renminbi)by more that 2% against its major composite currency index.
c. suppose the economy is operating below the natural level of output. Discuss the arguments for and against using devaluation in such a situation.
d. suppose the economy is initially operating above the natural level of output. In a fixed exchange rate regime, explain how the economy will adjust to this situation.
