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May 4, 2015

Homework Help: Economics

Posted by CLA on Sunday, March 27, 2011 at 10:10am.

“Many countries peg their own currencies to the greenback; these countries import U.S. inflation when the Fed makes a mistake.” Why would these countries “import” inflation.



A. this is incorrect because countries only import goods or services


B. this is correct because a fixed exchange rate means that your country must experience the inflation of the country to which your exchange rate is fixed


C. this is incorrect because inflation is determined by your country’s own money growth rate


D. this is correct because higher inflation in the U.S. will increase your imports and decrease your exports, creating a balance of payments deficit and so inflation

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