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Q. Explain why the EMS countries decided to fix their exchange rates against the German DM?
Answer: In this manner the other EMS countries in effect imported the credibility of the German central bank in fighting inflation therefore discouraging the development of inflationary pressures at home.
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Q. Use the DD - AA model to examine and compare the response of an economy under fixed and floating exchange-rate regimes to a temporary fall in foreign demand for its exports.
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Q. Why Study Fixed Exchange Rates? Answer: Four main reasons: • Managed Floating - Current monetary system is hybrid of floating rate and pure fixed systems fix
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