Question: 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

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.

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