Suppose you are a member of the monetary policy committee of a small open economy, dependent on oil imports, which also wants to maintain a currency...

Suppose you are a member of the monetary policy committee of a small open economy, dependent on oil imports, which also wants to maintain a currency peg to the dollar. (a) Describe the pressures that the currency would face due to the increase in oil prices? (Hint: think about the effects of the higher oil prices on the domestic price level as well as the current account). In order to maintain the currency peg? Will this response by the central bank increase or decrease foreign reserves?