Considering two countries A and B, if they use the euro, Country A uses high technology...

Considering two countries A and B, if they use the euro, Country A uses high technology production which reduces costs, since they have a fixed exchange rate, how will country B respond to locals buying from country A? How will this imbalance cause problem with the fixed exchange rate? Please show me a suitable graph.

Expert Solution

Country A uses high technology production which reduces costs, since they have a fixed exchange rate. Country B should respond to locsl in order to buy from country B as Country A has advantage of provinding technological production which means that A fixed rate of exchange occurs when a rustic keeps the worth of its currency at a particular level against another currency. Often countries join a semi-fixed rate of exchange , where the currency can fluctuate within alittle target level. For example, the ecu rate of exchange Mechanism ERM was a semi-fixed rate of exchange system.Due to the impossibility of adjusting the rate of exchange within the Eurozone, currency overvaluation resulted within the systematic deterioration of the present account of the balance of payments. Countries may leave higher discrepancies in compliance with their trade or rate of exchange policies (Gnimassoun & Mignon, 2013). Gnimassoun and Coulibaly (2014) studied accounting sustainability during the amount from 1980 to 2011. They found that accounting deficits are higher in countries with fixed rate of exchange regimes or in people who belong to a system of monetary union.

Rahul Sunny answered 1 year ago

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