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Macroeconomics Homework
Chapter 21

1. What is the definition of Gross Domestic Product (GDP)?

Gross Domestic Product is the market of all final goods services produced within a
country in a given time period

2. What is the difference between final good and intermediate good?

Final good is an item, bought by final user during a specified time period.
Intermediate good is an item that is produced by one firm, and used as a component of
a final good or service.

3. Which one is included in the calculation of Gross Domestic Product (GDP), final
good or intermediate good?
To calculate the GDP, it values Final Goods and services provided.

4. What is the example of final good?

If we buy an apple than we eat it for breakfast, the apple is final good.

5. What is the example of intermediate good?

If we buy a chicken and noodles to create chicken noodle, than the chicken and the
noodles is the intermediate good.

6. Draw the complete circular flow of expenditure

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7. How to measure GDP using the expenditure approach

The expenditures approach says 
GDP = consumption + investment + government expenditure + exports – imports.
The income approach sums the factor incomes to the factors of production. The
output approach is also called the “net product” or “value added” approach.
8. How to measure GDP using income approach
Formula for Income Approach. It's possible to express the income approach
formula to GDP as follows:
Total National Income + Sales Taxes + Depreciation + Net Foreign Factor Income.
Total national income is equal to the sum of all wages plus rents plus interest and
profits

9. Why does GDP equal to Aggregate Expenditure and equal to Aggregate Income?
Aggregate income is a form of GDP that is equal to Consumption expenditure plus net
profits. 'Aggregate income' in economics is a broad conceptual term. It may express
the proceeds from total output in the economy for producers of that output.

10. What is the difference between Nominal GDP and Real GDP
Nominal GDP- Goods and services are evaluated at current prevailing prices. The
main difference between nominal and real values is that real values are adjusted
for inflation, while nominal values are not. As a result, nominal GDP will often
appear higher than real GDP.

11. When is real GDP called Potential GDP?

When the economy has an inflationary gap

12. What do we call Real GDP fluctuation?

They are often called business cycles

13. Give examples of some factors that influence the standard of living but not included in Real
GDP.
Underground economic activity, household production, leisure time and
environmental quality
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Chapter 22

14. Why is Unemployment a problem?

Unemployment is a serious personal and social economic problem because it’ll result
in lost incomes and production and lost human capital

15. How does the government monitor unemployment?

The cost of unemployment is spread unequally which makes it a highly charged
political problem as well as a serious economic problem. Government make strenuous
effort to measure unemployment accurately and to adopt policies to moderate its level
and ease its pain.

16. From the anatomy of the labor force, students of UPH are part of (or included in) the
Working Age Population. However they are not included in the Labor Force. Explain.
The labor force does not include the jobless who are not seeking work, such as full-
time students, homemakers, and retirees. They are considered to be outside the labor
force which called as the working-age population

17. What is the definition of Not employed or Unemployed?

The non-employed may have given up on looking for work. There's often a point at
which someone who is unemployed crosses over into being non-employed. That point
occurs when the person gets discouraged and stops looking for work. The non-
employed may be disabled or be the stay at home parents.

18. Describe 3 (three) labor market indicators

The unemployment rate, The unemployment-to-population ratio, The labor force
participation rate.

19. Why Natural Unemployment exists?

Because it arises from frictions and structural change when there is no cyclical
unemployment – when all the unemployment is frictional and structural

20. What is the difference between Job Losers and Job Leavers
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A job loser is an unemployed person who has been involuntarily terminated or laid off
from a job. More specifically, a job loser is a person who has been permanently
terminated from a job and is actively seeking employment. However job leaver is a
person who has voluntarily quit one job and is actively seeking employment
elsewhere.

21. When there exist Full Employment?

Full employment exists without any cyclical or deficient-demand unemployment, but
does exists with some level of frictional, structural and voluntary unemployment.

22. Draw the graph of Output Gap (Potential GDP – Real GDP) and Unemployment Rate
and compare both of them
Output Gap

Unemployment Rate
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23. Why are we interested in price level?

First, we want to measure the annual percentage change of the price level – the
inflation rate or the deflation rate. Second, we want to distinguish between the money
values and real values of economic variables such as your student loan and your
parents savings.

24. What is Consumer Price Index (CPI) or Indeks Harga Konsumen (IHK)
Measure of the average of the prices paid by urban consumers for a fixed basket of
consumer goods and services.

25. Who calculated the Indonesia CPI or IHK?

It is calculated by Badan Pusat Statistik (BPS)

26. How do we calculate the inflation rate

Inflation rate = CPI this year-CPI last year / CPI last year X 100%

27. What are the 4 (four) factors that made CPI bias upward?
i. New Good Bias
Because a PC is more expensive than typewriter was, the arrival of the PC
puts an upward bias into the CPI and its inflation rate
ii. Quality Change Bias
Cars and many other goods get better every year. Part of the rise in the prices
of these goods is a payment for improved quality and is not inflation. But the
CPI counts the entire price rise as inflation and so overstates inflation.
iii. Commodity Substitution Bias
Change in relative prices lead consumers to change the items they buy. For
example, if the price of the beef rises and the price of chicken remain
unchanged , people buy more chicken and less beef. This switch from beef to
chicken might provide the same amount of meat and the same enjoyment as
before and expenditure is the same as before, The price of the meat has not
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changed. But because the CPI ignores the substitution of chicken for beef, it
says the price of meat has increased.

28. Give 4 (four) alternative measures of CPI

Chained CPI, personal consumption expenditure deflator, GDP deflator.

29. Explain what is Core Inflation

Core inflation rate is a measure of the inflation rate that excludes volatile prices in an
attempt to reveal the underlying inflation trend. To determine the trend in the inflation
rate, we need to strip the raw numbers of their volatility.
For example : In inflation, what fluctuated the most is food and fuel , so they are very
volatile and core inflation excludes rice and gasoline. If BBM increased, inflation is
increased but the core inflation stay the same.

Chapter 23

30. How to calculate economic growth rate?

Real GDP growth rate = Real GDP in current year- Real GDP in previous year / Real
GDP in previous year X 100%

31. How to calculate Standard of Living?

Real GDP per capita, the formula is real GDP / Population

32. What are the components that determine the potential GDP?
Personal consumption expenditures, investment, net exports, government expenditure.

33. What is the Aggregate Production Function?

Aggregate production function is the relationship that tells us how real GDP changes
as the quantity of labour changes when all other influences on production remains the
same.

34. What is the Aggregate Labour Market?

Aggregate labour market consist of demand for labour, supply of labour, demand and
supply equilibrium. Demand for labour, relationship between quantity of labour
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demanded, and the real wage rate. This shows the total of goods and services that
labour can buy. Supply for labour, this is the relationship between real wage rate and
the number of labour supplied by household.

35. Why Law of Diminishing Returns exist in the Labour Market

More labour needs more capital and more land, otherwise the output will not increase,
but decrease instead. For example, 1 photocopy machine + 10 worker. If number of
worker increases then output will decrease unless the photocopy machine is increases
as well.

36. What makes Potential GDP grows

Growth of the supply of labour, when the supply of labour grows, the supply of labour
curve shifts right-ward. The quantity of labour at a given real wage rate increases.
Growth of labour productivity, labour productivity is the quantity of real GDP
produced by an hour of labour. It is calculated by dividing real GDP by aggregate
labour hours.

37. What happen when women decide to go to work (more women working)
It will bring growth in the supply of labour, but it does not change the demand for
labour or the production function. The economy can produce more output by using
more labour, but there is no change in the quantity of real GDP that a given quantity
of labour can produce. With an increase in the supply of labour and no change in the
demand for labour, the real wage rate falls and the equilibrium quantity of labour
increases. The increased quantity of labour produces more output and potential GDP
increases.

38. What happen if women decide to postpone their marriage age

Labour supply will increase as they didn’t stop working, while the younger people are
kept on entering the labour supply. But, demand, quantity of real GDP will stay the
same. Real wage rate will fall and the equilibrium quantity of labour increases.
Potential GDP and output will also increase.

39. Give 3 (three) factors that explain why labour productivity grows
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Investment and saving physical capital, new technology and human capital

40. What is the difference and the similarity between New Growth Theory, Classical Growth
Theory, and Neo Classical Theory
Classical growth theory reminds us that our physical resources are limited and that
without advances in technology, we must eventually hit diminishing returns.
Neoclassical growth theory reaches the same conclusion but not because of a
population explosion. Instead, it emphasizes diminishing returns to capital and
reminds us that we cannot keep growth going just by accumulating physical capital.
We must also advance technology and accumulate human capital. We must become
more creative in our use of scarce resources. New growth theory emphasizes the
capacity of human resources to innovate at a pace that offsets diminishing returns.
New growth theory fits the facts of today’s world more closely than do either of the
other two theories.

41. What should we do to achieve Faster Economic Growth?

We should lower interest rates, increased real wages as well as higher global growth.

Chapter 24

42. What is Finance?

Finance is a field that is concerned with the allocation of assets and liabilities over
space and time, often under conditions of risk or uncertainty. Finance can also be
defined as the art of money management.

43. What is the difference between Financial Capital and Physical Capital
Financial capital most commonly refers to assets needed by a company to provide
goods or services, as measured in terms of money value. Whereas physical
capital refers to a factor of production (or input into the process of production), such
as machinery, buildings, or computers. In economic theory, physical capital is one of
the three primary factors of production, also known as inputs production function.

44. Describe the link between Wealth, Saving, Investment, and Capital
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So the link is that saving provides a source of money to invest and these
Investment allows for firms to buy new capital goods. This leads to economic growth.
One of the danger signs of an economy in trouble is when the personal debt rate
climbs much faster than the savings or investment rate.

45. Where does this link takes place

Saving takes place when people abstain from consumption, that is, when they
consume less than their income. Investment takes place when we purchase new
capital equipment or other assets that make for future productivity. Investment does
not mean just buying stocks or bonds.

46. Describe 3 (three) types of market that exist in the Financial Market
i. Capital market
The capital market aids raising of capital on a long-term basis, generally over 1 year.
It consists of a primary and a secondary market and can be divided into two main
subgroups – Bond market and Stock market.
ii. Money Market
The money market enables economic units to manage their liquidity positions through
lending and borrowing short-term loans, generally under 1 year. It facilitates the
interaction between individuals and institutions with temporary surpluses of funds and
their counterparts who are experiencing a temporary shortage of funds.
iii. Foreign exchange market
The foreign exchange market abets the foreign exchange trading. It’s the largest, most
liquid market in the world with an average traded value of more than $5 trillion per
day. It includes all of the currencies in the world and any individual, company or
country can participate in it

47. What is the definition of Bonds, who can issue Bonds and why issue Bonds
A bond, also known as a fixed-income security, is a debt instrument created for the
purpose of raising capital. They are essentially loan agreements between the bond
issuer and an investor, in which the bond issuer is obligated to pay a specified amount
of money at specified future dates.

48. What is the difference between Stock Owner and Bonds Owner
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Stock owner are those who own stock in a company, whereas bond owners are those
who own bonds issued by a company. Both investments offer the opportunity to make
money, but there are risks inherent in each as well. When you purchase a
company's stock, you're essentially buying a piece, or share, of that company.

49. What is Financial Institution

A financial institution is a firm that operates on both sides of the markets for financial
capital. A financial institution is a borrower in one market and a lender in another.

50. Describe the types of the Financial Institution

a. Commercial Banks:
Financial institutions that accept deposits, provide payment services, and make
loans to firms and households.
b. Government-sponsored mortgage lenders:
The enterprises that buy mortgages from banks, package them into mortgage-
backed securities and sell them.
c. Pension Funds:
Financial institutions that use the pension contributions of firms and workers
to buy bonds and stocks.
d. Insurance Companies:
Enables household and firm to cope with risks such as accident, theft, fire, ill-
health, and a host of other misfortunes.
e. The Federal Reserve:
This system is the central bank of the United States, a public authority whose
main role is the regulation of banks and money.

51. What is the role of Investment Banks in the Indonesian Capital Market
The roles of Investment Banks in the Indonesian capital market are adding liquidity to
the market and estimate the current market rates.

52. Describe the difference between Insolvency and Illiquidity

Insolvency is when a financial institution’s net worth is negative and must go out of
business, usually the stakeholders of the institution bear the loss. Illiquidity, on the
other hand is when a firm has made a long-term loan with borrowed funds and is
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faced with a sudden demand to repay more of what it has borrowed than its available
cash.

53. Describe the relationship between interest rate and price of financial asset
If the interest rate on an asset rises, the price of the asset falls, debts become harder to
pay, and the net worth of the financial institution falls. Insolvency can arise from a
previously unexpectedly large rise in the interest rate.

54. What is the Market for Loanable Fund?

Market for loanable fund is the aggregate of all the individual markets in which
households, firms, governments, banks, and other financial institutions borrow and
lend.

55. Describe the source of the fund in this market

Household saving: Money spent on consumption goods and services (C), saved (S),
or paid in net taxes (T).
Government budget surplus: Increases the supply of loanable funds and contributes to
financing investment.
Borrowing from the rest of the world: Financing its deficit or lends its surplus.

56. Draw the Financial Flow and Circular Flow of Expenditure Income

57. Why is the real interest rate the opportunity cost of loanable fund?
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Because the real interest rate paid on borrowed funds is the opportunity cost. And the
real interest rate forgone when funds are used to buy consumption goods and services,
or to invest in new capital goods is the opportunity cost of not saving or not lending
those funds.

58. Draw the graph of the Equilibrium of Demand and Supply in the Market

59. What happens to the real interest rate and the quantity of fund, if profit increased?
If profit increases, the real interest rate falls, as investment and the quantity of
loanable funds demanded increases.

60. What happens to the real interest rate and the quantity of funds, if expected future
income increased?
An increase in expected future income decreases the supply of loanable funds. A
decrease in expected future income increases the supply of loanable funds. If the
supply of loanable funds increases and the demand does not change, the real interest
rate falls and the quantity of loanable funds increases. If the supply of loanable funds
decreases and the demand does not change, the real interest rate rises and the quantity
of loanable funds decreases.
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61. What happen to the real interest rate and the quantity of fund, if government run a
budget surplus
When a government has a budget surplus, the supply of loanable funds increase the
supply shifts outwards. As a result of that there is excess funds and the interest rates
goes down and forms a new equilibrium.

62. What is crowding out effect?

In economics, crowding out is a phenomenon that occurs when increased government
involvement in a sector of the market economy substantially affects the remainder of
the market, either on the supply or demand side of the market.

63. What happen if a US investor find out that the real interest rate in Jakarta is higher
than the real interest rate in New York?
They will invest in Indonesia so that they get more interest money. By doing so the
supply of loanable funds market in Indonesia will be higher thus later decreasing the
interest rate. At the end economics will always find its way toward an equilibrium
where the US investor will be indifferent in investing in New York or Jakarta.

64. What happen if a closed country, whose real interest rate is 6% and facing the world
real interest rate at 5%, open up its financial market?
The rest of the world will rush in and try to get the interest of 6%. As demand of
loanable funds is still the same, a higher supply will decrease the interest rate to a new
equilibrium. The world real interest rate might change to be a little higher.

Chapter 25

65. What is the definition of money?

A current medium of exchange in the form of coins and banknotes; coins and
banknotes collectively.

66. What is the function of money?

Money is used as a medium of exchange to facilitate transactions

67. What is the official measurement of money?

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Medium Of Exchange, Unit Of account, Store Of Value. A Medium Of Exchange means that
it is an acceptable means of payment and the seller accepts the type of payment. Unit Of
Account means that the money becomes a standard unit to measure the prices of different
products so that it is easier to compare. An example will be an ice cream costs 2 coffees and 1
coffee costs 2 candies. By having the Unit Of Account, we can now easily express the
comparisons. An ice cream costs $4 and a coffee costs $2 and a candy costs $1. It is now
easier to compare. Store Of Value means that even though the money is not used now, it can
be stored and used in the future with no loss in value. A $1 bill will still be a $1 bill.

68. What is depository institution?

Financial firms that takes deposits from households and firms as well as providing
loans to other households and firms.

69. What do they do?

They maximize the wealth of its owners.

70. What is the economic benefit of them?

Create liquidity: Taking deposit and ready to repay them on short notice or on
demand, and making loan commitments that is long run, borrowing
short, lending loan.
Pool risk: By using a bank, you can let the bank to take the risk
Lower the cost of borrowing: By using a bank, the cost of borrowing is lower by spreading
the cost of loan activity
Lower the cost of monitoring borrowers: By using a bank, the cost of monitoring is lower for
us.

71. What is the Central Bank of Indonesia?

Main bank in Indonesia

72. What is the job of the central bank?

To conduct monetary policy to control the quantity of money to achieve the inflation
target.

73. What is the policy tools of the Central Bank?

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i. Open market operations : the purchase or sale of securities by the Fed in the loanable
funds market.
ii. Last resort loans : The Central Bank is the lender of last resort, which means the
central banks stands ready to lend reserves to depository institutions that are short of
reserves.
iii. Required reserve ratio : the minimum percentage of deposits that depository
institutions are required to hold as reserves.

74. Describe in details, how Banks create money.

Banks basically make money by lending money at rates higher than the cost of
the money they lend. More specifically, banks collect interest on loans and interest
payments from the debt securities they own, and pay interest on deposits, CDs, and
short-term borrowings. Banks provide various loans and advances to
industries, corporates and individuals. The interest received on these loans is their
main source of income.

75. What is the formula for money multiplier?

mm=M/MB
mm= money multiplier
M= money
MB= monetary base
M=D+C
D= deposits
C= Currency
MB= R+C
R= reverses
mm = M/MB = (D+C)/ (R+C)
mm = M/MB = (1 + C/D) (R/D + C/D)
C/D = currency drain
R/D = banks’ reserve ratio

76. Draw the graph of demand for money

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77. Draw the impact of Financial Innovation on the Demand for Money

78. Draw the short-run and long-run equilibrium of Demand for and Supply of Money
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79. Using the Quantity Theory of Money, describe what happen if the Central Bank
increase the Supply of Money
The quantity theory of money is based directly on the changes brought about by an
increase in the money supply. The quantity theory of money states that the value of
money is based on the amount of money in the economy. Thus, according to the
quantity theory of money, when the Central Bank increases the money supply, the
value of money falls and the price level increases. Inflation is defined as an increase
in the price level. Based on this definition, the quantity theory of money also states
that growth in the money supply is the primary cause of inflation.

Chapter 26
80. What is the foreign exchange market?
The foreign exchange market is the market in which participants are able to buy, sell,
exchange and speculate on currencies.

81. What is the exchange rate? Give an example of the exchange rate of Rupiah against
US dollars
Exchange rates are the amount of one currency you can exchange for another. For
example, the dollar’s exchange rate tells you how much a dollar is worth in a foreign
currency. For example, if someone traveled to Indonesia on January 29, 2019, they
would receive 14.031 rupiah for their one U.S. dollar. They would get a little less than
the exchange rate as the banks charge their service fee. Conversely, a dollar was
worth Rp.14,031.

82. What is a depreciation and an appreciation? Give examples.

Depreciation is defined as the reduction of recorded cost of a fixed asset in a
systematic manner until the value of the asset becomes zero or negligible. For
example, automobiles, computers and physical equipment gradually decline in value
as they progress through their useful lives.
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Appreciation is an increase in the value of an asset over time. For example, real estate,
stocks and precious metals represent assets purchased with the expectation that they
will be more worth in the future than at the time of purchase.

83. What is real exchange rate? Give examples of real exchange rate. Write the formula
for real exchange rate.
The real exchange rate is defined as the ratio of the price level abroad and the
domestic price level, where the foreign price level is converted into domestic currency
units via the current nominal exchange rate. The real exchange rate tells how much
the goods and services in the domestic country can be exchanged for the goods and
services in a foreign country.
Example: if a bottle of US wine can be sold for $20, and the nominal exchange rate is
0.8 Euro per US dollar, then the bottle of US wine is worth 20 x 0.8 = 16 Euro. If a
bottle of European wine costs 15 Euro, then 16/15 = 1.07 bottles of European wine
can be purchased with the 16 Euro. Putting all of the pieces together, the bottle of US
wine can be exchanged for 1.07 bottles of the European wine, and the real exchange
rate is thus 1.07 bottles of European wine per bottle of US wine.

The formula: RER=eP*/P. e= nominal exchange rate, P*=domestic price, P=foreign

price.

84. What determine the exchange rate as the price in the foreign exchange market?
Inflation rate, interest rate, country’s current account, government debt, terms of
trade, political stability and performance, recession and speculation.

85. Give 4 (four) factors that affect the demand for the Indonesian Rupiah
Inflation rates, Interest rates, government debt as well as recession can affect the demand for
the Indonesian Rupiah

86. The exchange rate influences the quantity of the currency demanded for 2 (two) reasons.
Explain
a) The money supply that's created by the country's central bank. If the
government prints too much currency, then there's too much of it chasing too
few goods. Currency holders will bid up the prices of goods and services. That
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creates inflation. If way too much money is printed, it causes hyperinflation.
That usually only happens when a country must pay off war debts. It's the
most extreme type of inflation.
b) The current account is the balance of trade between a country and its trading
partners. It describes the difference in value between the goods and services
trades with other countries. If a country buys more than it sells then the
balance of trade is deficit. It directly affects the exchange rate since a country
will need more foreign capital, thus diminishing the supply for local currency.
This excess supply of local currency drives down its value against foreign
currency.

87. Give 4 (four) factors that affect the supply for the Indonesian Rupiah
i. Open market operations
ii. Reserve requirement imposed on banks
iii. Policy of interest rate set by central bank
iv. Public’s demand for cash balance

88. The exchange rate influences the quantity of the currency supplied for 2 (two) reasons.
Explain.
i. The money supply that's created by the country's central bank. If the
government prints too much currency, then there's too much of it chasing too
few goods. Currency holders will bid up the prices of goods and services. That
creates inflation. If way too much money is printed, it causes hyperinflation.
That usually only happens when a country must pay off war debts. It's the
most extreme type of inflation.
ii. The current account is the balance of trade between a country and its trading
partners. It describes the difference in value between the goods and services
trades with other countries. If a country buys more than it sells then the
balance of trade is deficit. It directly affects the exchange rate since a country
will need more foreign capital, thus diminishing the supply for local currency.
This excess supply of local currency drives down its value against foreign
currency.
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89. Draw the diagram where the demand and supply of the foreign exchanger reached
equilibrium

90. Describe the 2 (two) forces that influence the value of one money relative to the value
of another money
i. Terms of Trade - A ratio comparing export prices to import prices, the terms of trade
is related to current accounts and the balance of payments. If the price of a country's
exports rises by a greater rate than that of its imports, its terms of trade have
favourably improved.
ii. Political Stability and Economic Performance - Foreign investors inevitably seek out
stable countries with strong economic performance in which to invest their capital. A
country with such positive attributes will draw investment funds away from other
countries perceived to have more political and economic risk.

91. Give examples of interest rate parity

A currency in worth what it can earn. The return on a currency is the interest rate on
that currency plus the expected rated of appreciation over a given period

92. Give example of purchasing power parity

A pen in Indonesia should have the same price as in the US. The price in Indonesia is
in rupiah while the price in US is in US dollars.

93. Describe the Big Mac Hamburger Standard

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One suggested method of predicting exchange rate movements is that the rate between
two currencies should naturally adjust so that a sample basket of goods and services
should cost the same in both currencies. In the Big Mac Index, the basket in question
is a single Big Mac burger as sold by the McDonald's fast food restaurant chain. The
Big Mac was chosen because it is available to a common specification in many
countries around the world as local McDonald's franchisees at least in theory have
significant responsibility for negotiating input prices.

94. Draw the balance of

payment account

95. What is the net borrower, net lender, debtor nation and creditor nation?
A country that is borrowing more from the rest of the world than it in lending to it is
called a net borrower.
A country that is lending more to the rest of the world that it is borrowing from it is
called a net lender
A debtor nation is a country that during its entire history has borrowed more than the
rest of the world that it has lent to it
A creditor nation is a country that has invested more in the rest of the world rather
than other countries have invested in it
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96. How are Net Export and Government sector related
Net exports is equal to the sum of government sector balance and private sector
balance

97. Describe the relationship between exchange rate and the current account and capital.

The current account records receipts from exports of goods and services sold abroad
to foreigner, payments for imports of goods and services from foreigner abroad, net
interest paid abroad, and net transfers (such as foreign aid payments).The current
accounts balance = exports - imports + net interest income + net transfers. The capital
and financial account records foreign investment in Indonesia minus Indonesia
investment abroad. The Exchange rate then determines the value of USD to foreign
currency and thus will determine exports/imports and investments to/from the US.

98. What is flexible exchange rate

A flexible exchange rate policy is one that permits the exchange rate to be determined
by demand and supply with no direct intervention in the foreign exchange market by
the central bank.

99. What is fixed exchange rate

A fixed exchange rate policy is one that pegs the exchange rate at a value decided by
the central bank and is achieved by direct intervention in the foreign exchange market
to block unregulated forces of demand and supply.

100.What is crawling peg ?

A crawling peg is an exchange rate that follows a path determined by a decision of the
central bank and is achieved by active intervention in the market. A crawling peg
works like a fixed exchange rate except that the target value changes. The idea behind
a crawling peg is to avoid wild swings in the exchange rate that might happen if
expectations became volatile and to avoid the problem of running out of reserves,
which can happen with a fixed exchange rate.