It Has Been Argued That One Advantage of Fixed Exchange

question 19

Essay

It has been argued that one advantage of fixed exchange rates is that they promote price discipline or price stability between trading partners. Is this argument supported by the AD/AS framework? Why or why not?

---

Definitions:

Inflation

The tempo at which the aggregate cost of goods and services ascends, depleting the power of purchase.

Nominal Wage

Nominal Wage refers to the amount of money paid to workers in current dollars, without adjusting for inflation or purchasing power.

Real Wage

The purchasing power of an individual's earnings, considering inflation, reflecting the actual goods and services that wages can buy.

Labor Productivity

An indicator of economic efficiency that assesses the volume of goods and services generated (output) in relation to the total labor hours expended in their production.