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.

---

Definitions:

Egoism

A theory in ethics that treats self-interest as the foundation of morals.

Psychological Egoism

The theory that suggests individuals are driven by self-interest and all actions are motivated by personal gain.

Altruistic Behavior

Selfless actions performed for the benefit of others, without expectation of personal gain.

Self-Interest

The concern for one's own advantage and well-being, with behavior guided primarily by personal benefits.