Suppose Nominal Gdp 2005 $11 Trillion

(10 points) Why would a country (for example, China) choose to keep their currency relatively pegged to the U.S. dollar If the U.S. dollar were to appreciate considerably against most currencies, what would be the effect on Chinese exports to countries other than the United States The price of Euro goods will be more expensive in US, while the price of US goods will be less expensive in Euro-zone. This is because as Euro appreciates with respect to , the US customers pay the Euro equivalent, which has risen, and thus their cost of purchase increases. On the other hand, the Europeans need less of US to pay for the imported US product, thus the price of US goods become less expensive in Euro. China would want to keep its currency pegged so as to get trade benefits. With depreciated currency Chinese goods will be cheaper in other parts of the world, and this would help in higher levels of Chinese exports. Moreover a pegged currency would give China the advantage of effectively dealing with exchange rate fluctuations in a fluctuating Exchange rate regime. This would allow them to plan easily and also help them prevent wastage of resources in