a. Suppose a country is in a fixed exchange rate regime such as China. Describe what factors might cause individuals to expect that a country will revalue its currency. Describe the various actions that policy makers can choose in response to this expected revaluation.
b. Suppose a country is in a fixed exchange rate regime. Now suppose that individuals expect that policy makers will devalue its currency. Describe the various actions that policy makers can choose in response to this expected devaluation.
c. Presume the economy is operating below the natural level of output. Discuss the arguments for and against using devaluation in such a situation.
d. Presume the economy is initially operating above the natural level of output. In a fixed exchange rate regime, describe how the economy will adjust to this situation.