goods for more than they are worth and sell them for less than they are worth (maintaining a fixed exchange rate at a lower level than one should) can be used to maintain GDP growth and lower levels of unemployement than would be possible without the currency intervention. ii.The resulting local inflation pressures (due to an exaggerated aggregate local demand) can be offset with tax and debt policies. iii.The impact on purchasing power in the foreign currency can be managed through purchases of foreign government bonds (deferring aggregate demand) and managed purchases of foreign currency priced commodities (buying into weak global demand, putting a floor on raw materials). 3.By pegging a currency to the US dollar, the impact is to include the net foreign supply (foreign production minus foreign consumption) in the US supply. a.Since a local economy can consume everything they produce, assuming the government does not tax away aggregate demand, foreign production results in a substitute to local production, assuming both local and foreign production can grow to fulfil any local demand. i.To maintain a currency peg, a single entity must control the foreign currency. Therefore one can look at the seller of the foreign goods as a single entity (just like every 7-11 sells slurpies, we don't expect each store to buy their own raw materials). In this case the foreign government sells a good in the US and temporarily decreases US aggregate demand by buying government bonds. ii.To increase aggregate demand (stimulating growth) the US government