Reference no: EM133226056

The change in the exchange rate caused by the increase in banana output has triggered intense conflict and debate within Platanian society. The president is especially confused about how a boom in the country's leading export industry could lead to exchange rate that some Platanians would complain about.

First, he has asked you to identify and briefly explain the economic interests of several groups in a stronger or weaker peso:

Owners of copper mines (copper being the country's second largest export);
Owners of refrigerator factories (refrigerators being produced mainly for the domestic market, but with stiff competition from imports);
Urban dwellers (whose household budgets tend to include a large portion of consumer goods that are importable);
The Platanian trade-union federation (which draws a large portion of its membership from the copper and refrigerator industries);
The president is just beginning to think about his campaign strategy for the next general election, to take place in a year and a half. Some public figures have argued that the central bank should alter its interest-rate policies to counter the current trend in the peso-dollar exchange rate.

Therefore, the president also wants to know from you:

Whether it would make more sense to raise or to lower interest rates, if the goal is to counter the current trend in the peso-dollar exchange rate?
Bearing in mind the overall political and economic context, whether you think he should support a change in interest-rate policy?
Present your analysis and recommendations. Be sure to explain yourself clearly, because the president is still confused about why the exchange rate has become a politicized issue. (Not to mention that he is feeling very sensitive after a major international business magazine recently referred to him as a typical Banana Republic leader.)