Fixed Exchange Rates

question 45

Multiple Choice

Fixed exchange rates:

• A)make transactions between countries riskier compared to floating exchange rates.
• B)make monetary policy interdependent between the countries fixing their exchange rate.
• C)give domestic monetary policy officials more autonomy.
• D)all of the above.

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Definitions:

Permanent Income Hypothesis

A theory suggesting that people's consumption choices are based on their long-term average income rather than their current income.

Tax Cut

A reduction in the amount of taxes imposed by a government, aiming to stimulate economic growth or achieve other policy objectives.

Disposable Income

After income taxes are taken out, disposable income represents the funds available to a household or individual for saving and spending purposes.

APS

Average Propensity to Save, which is the fraction of total income that is saved by an economy or individual.