(Answered) Suppose that mexico has a fixed exchange rate regime and

Economics

Suppose that Mexico has a fixed exchange rate regime, and value of peso is fixed against the dollar. If U.S. real income growth rate increases above that of Mexico, how should the monetary policy react to maintain the fixed exchange rate regime?

a) Mexico has to increase growth rate of money supply.

b) Mexico has to reduce growth rate of money supply.

c) Under fixed exchange rate regime, they cannot change monetary policy.

d) U.S. should adjust monetary policy.

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