How the amount of foreign exchange reserves

Reference no: EM133552715

(i) Can you think of reasons why a government (of either a developed or developing country) might be concerned about persistently large current account de cits over the years? Hint: Suppose people prefer to have a more constant rather than suctuating ratio between consumption and income.

(ii) Why might the government of a developing country which pegs its exchange rate to a major currency be concerned about persistently large balance of payments de cits over the years? Discuss this in the context of how the amount of foreign exchange reserves of a country is related to the stability of the currency peg.

Reference no: EM133552715

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