Based on the Premise That, Other Things Equal, Countries Would

question 54

Multiple Choice

Based on the premise that, other things equal, countries would prefer a fixed exchange rate, which of the following statements is NOT true?

• A) Fixed rates provide stability in international prices for the conduct of trade.
• B) Fixed exchange rate regimes necessitate that central banks maintain large quantities of international reserves for use in the occasional defense of the fixed rate.
• C) Fixed rates are inherently inflationary in that they require the country to follow loose monetary and fiscal policies.
• D) Stable prices aid in the growth of international trade and lessen exchange rate risks for businesses.

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