Pegged Exchange Rate and Its Effect on the Saudi Economy

Discuss the pegged exchange rate and its effect on the Saudi Arabia economy.

While Saudi Arabia seeks to diversify its economy, the Saudi economy is dominated by the petroleum sector. In addition, the Saudi Arabian Riyal (SAR) is pegged to the U.S. Dollar. What are the advantages and disadvantages of the pegged exchange rate? Analyze the effect on the economy of Saudi Arabia (GDP, interest rates, inflation, and trade balance) given two scenarios when there is a dramatically declining world oil price or a dramatically increasing world oil price.