Symmetric shocks pose fewer problems for nations linked by fixed exchange rates to a base currency. In general:
A) because there are common problems, the economic policy taken by the base currency nation is beneficial for both nations.
B) it gives the nation maintaining the peg more autonomy to deal with financial crises.
C) the base currency nation can just do nothing, and the issue will resolve itself.
D) when there are symmetric shocks, the home nation unlinks its exchange rate from the base currency nation.

Question

Quizplus · Accepted Answer

When nations are linked by fixed exchange rates to a base currency, symmetric shocks (i.e. shocks affecting both countries in the same way) are easier to manage. This is because the economic policy taken by the base currency nation is likely to be beneficial for both countries, as they share similar economic conditions. Therefore, the home nation is likely to follow the policy of the base currency nation, which can help to mitigate the effects of the shock.

Symmetric Shocks Pose Fewer Problems for Nations Linked by Fixed