One Argument for a System of Fixed Exchange Rates Such

question 28

Multiple Choice

One argument for a system of fixed exchange rates such as that established under the Bretton Woods agreement in 1944 is that fixed exchange rates

• A) prevent countries from having chronic balance-of-payments deficits.
• B) maintain the price of gold.
• C) help all countries carry out domestic full-employment monetary and fiscal policies.
• D) minimize volatility in international currency markets.
• E) eliminate the need for governments to buy and sell their own currencies in foreign exchange markets.

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Definitions:

Trade Benefits

Advantages countries gain from engaging in international trade, such as increased economic growth, diversification, and access to new markets.

Comparative Advantage

An economic theory stating that countries or entities benefit from specializing in producing goods where they have lower opportunity costs, leading to more efficient global production.

Absolute Advantage

The ability of an entity to produce a good or service more efficiently than its competitors when given the same resources.

Specialization

The process by which individuals, businesses, or countries focus on producing a narrow range of goods or services, improving efficiency and expertise in that area.