Explain why a exchange rate-based stabilization plan may result in a real appreciation?
What will be an ideal response?
Real appreciation may result for any of three reasons: first, persistent inflation due to say lagged wage indexation; second, lack of credibility of the policy; and third, productivity shifts due to inflation reduction or efficient reforms. See also Figure 22-3 for illustration in the case of Argentina, Chile, Brazil and Mexico. See also Chapter 15.
You might also like to view...
Why do most economists believe that the Laffer argument does NOT apply to broad-based taxes?
What will be an ideal response?
Cartels:
A. are usually illegal. B. can effectively sustain large profits in the long run. C. can act as if they are a single monopoly. D. All of these statements are true.
Which of the following characteristics of the monopolistically competitive and the perfectly competitive market will cause the firm to earn zero profits in the long run?
A. no barriers to entry B. many buyers C. price taker D. homogeneous product
Regarding open economies, economists tend to find evidence that
A. the more closed an economy is, the higher the rate of growth the economy will experience. B. open economies tend to have access to smaller markets than do closed economies. C. free trade encourages a more rapid spread of technology, and hence increases economic growth. D. trade tariffs tend to improve economic growth.