All of the Following Are Costs of a Fixed Exchange

question 112

Multiple Choice

All of the following are costs of a fixed exchange rate policy except:

• A)Sacrificing control of the domestic inflation rate
• B)Higher import prices
• C)The cost of maintaining ample international reserves
• D)It means importing monetary policy

---

Definitions:

Product-Variety Externality

An economic effect where an individual's consumption choices can lead to an increase in the variety of products available, potentially benefiting other consumers.

Negative Externality

A cost that affects a party who did not choose to incur that cost, often associated with production or consumption activities.

Monopolistically Competitive

A market structure characterized by many firms selling products that are similar but not identical, allowing for some degree of market power and differentiated competition.

Long-Run Equilibrium

A state in which all factors of production and costs are variable, allowing firms to make adjustments so that supply equals demand, leading to no economic profit in perfect competition.