Explain how leaders can manipulate the value of their country's currency in order to gain political advantage.
What will be an ideal response?
Ans: Leaders can offer trade protection in exchange for political support. One way to provide trade protection without imposing tariffs is by increasing the money supply, thereby depreciating currencies and making imported goods more expensive compared to domestic goods (and making domestic production cheaper). Such a policy will protect domestic producers in exchange for their support for the leader. It will also benefit domestic exporters. To gain the political support of importers, the leader will have to do the opposite--reduce the money supply to the market, thereby appreciating the currency. This will make imported goods cheaper compared to domestic goods. This will favor importers at the expense of domestic producers and exporters.
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What will be an ideal response?
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What will be an ideal response?