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  3. 3 an economy fixes its exchange rate at 5 pesos...

Question: 3 an economy fixes its exchange rate at 5 pesos...

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3. An economy fixes its exchange rate at 5 pesos per US dollar. It has a balance of payment surplus of US$ 100 million (15%). What would happen to the exchange rate if the central bank does not do anything? a. b. What action would the central bank take to keep the exchange rate fixed? c. How would the central banks action affect high-powered money and the money supply? What are the impacts of the change in the money supply on the interest rate, d. hand the balance of ayment sush short nun and in the long run?4 How does a central bank sterilize a balance of payment surplus? What is the purpose of sterilization?d e.

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