Which tourists appreciate a lot for the warm climate

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Reference no: EM13239892

Exchange Rate Regimes and Monetary PolicyConsider a world composed of two fictional countries. Country A is a very large and advanced economy, whereas country B is newly industrialized country, which tourists appreciate a lot for its warm climate and great Mexican food.The government of country B wants to raise revenue corresponding to at least 15% of GDP using inflation (this is done increasing money supply by this amount and using the newly created money to buy goods and services).

Note: Use the Quantity Equation and PPP to answer the following question

Country B wants to link its currency to the currency of country A (the dollar) using a crawling peg. The inflation rate in country A is 2% per year. At what rate should country B's central bank let the peso-dollar exchange rate change over time?

Reference no: EM13239892

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