Question

A soft peg policy typically allows the exchange rate to move up and down by relatively small amounts in _________________, but seeks to avoid extreme short-term fluctuations.

Answer 1

- The short run.

Step-by-step explanation:

'Soft-peg' policy demonstrates the kind of exchange rate system that is required to be applied to the currency of a country in order to manage its worth/value in the foreign market and also in comparison with the reserve currency and with other countries' currencies.

As per the question, a soft peg policy allows the exchange rates to shuffle(move up or down) in small amounts and in 'the short run' as the chief aim is to seek avoidance to extreme variation or fluctuation in short-term which could destabilize the value of the currency in comparison to reserve currency.