One Disadvantage of a Fixed Exchange Rate System Compared to a Floating

question 9

Multiple Choice

One disadvantage of a fixed exchange rate system compared to a floating or managed float exchange rate system is

• A) it is more difficult for central banks to control inflation with a fixed exchange rate system.
• B) a fixed exchange rate system does not allow for government intervention.
• C) a fixed exchange rate system can worsen inflation if domestic prices of imports rise quickly.
• D) a fixed exchange rate system eliminates the possibility of depreciation during a recession.

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Definitions:

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