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Problem: Monetary Approach
a) For a time, Argentina pegged its exchange rate to the U.S. (a country with a stable price level) as a way of guaranteeing low inflation in their own country. Use the equation for the 'monetary approach to exchange rates' to explain why a fixed exchange rate should have this benefit for Argentina.
b) Suppose Argentina has a growth rate in output (Y) that is higher than the U.S. Use the monetary approach equation to explain whether this creates a problem for the use of a fixed exchange rate to the US dollar to guarantee stable low inflation for Argentina.
Why might it be difficult for the Fed to formally adopt inflation targeting? Would inflation targeting be a good policy for the Fed in the present economic environment
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