State what the upward trend shown in Fig. 1.1 means has happened to the value of the peso between 2016 and 2018.
The central bank of Argentina sold US dollars from its foreign exchange reserves to a value of US$1.5 billion on one day in May 2018. With the help of a supply and demand diagram, explain what effect you would expect this intervention to have on the value of the Argentine peso.
The extract says that risks to the peso have been building for some time and that large budget and current account deficits are among those risks. The extract also says that persistent high inflation is a risk to the peso.
- Explain the difference between a budget deficit and a current account deficit. [2]
- Explain one way in which persistent high inflation is a threat to the peso. [2]
Use aggregate demand and aggregate supply analysis to explain how the recent rises in interest rates might help Argentina lower its annual inflation rate and meet its target.
Discuss whether the possible advantages to the Argentine economy outweigh the disadvantages if the president succeeds in ending protectionism.