Which of the following explains why a monetary policy in a nation with an exchange rate peg, such as Denmark, would NOT be possible?
a. The nation must keep its import tariffs in sync with the import tariffs of the nation to which it pegs.
b. The nation must keep its price level and nominal interest rate equal to the price level and nominal interest rate in the nation to which it pegs.
c. The nation must keep its taxes and budget deficit in sync with taxes and budget deficit in the nation to which it pegs.
d. The nation is no longer able to print its own money, since it is using the currency of the nation to which it pegs.
Answer: b. The nation must keep its price level and nominal interest rate equal to the price level and nominal interest rate in the nation to which it pegs.
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