An Advantage of Fixed Exchange Rates for a Country That

question 108

Multiple Choice

An advantage of fixed exchange rates for a country that suffers from bouts of high inflation is:

• A) it makes imports less expensive.
• B) it establishes a credible low inflation policy.
• C) it unties policymakers' hands so they can alter the reserves of the banking system as needed.
• D) policymakers will have increased control over domestic interest rates.

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Definitions:

Downward Rigidity

A situation in economics where wages or prices are resistant to decrease even in conditions where they logically should, such as during a recession.

Classical Model

An economic theory emphasizing that markets function best without government interference, focusing on long-term growth by ensuring goods and labor markets are in equilibrium.

Aggregate Supply

The sum of all products and services that enterprises in an economy expect to sell during a defined time span.

Price Level

The mean of current prices for all goods and services generated within the economy.