Proponents of Fixed Exchange Rates, Who Argue That Fixed Exchange

question 46

Multiple Choice

Proponents of fixed exchange rates, who argue that fixed exchange rates eliminate uncertainty and therefore promote international trade, sometimes fail to recognize:

• A) that fixed exchange rates may not remain fixed forever.
• B) that fixed exchange rates are more volatile than flexible exchange rates.
• C) that exchange rates do not matter to businesses, so the uncertainty has no impact.
• D) that international trade is bad for the economy and should not be promoted.

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Definitions:

Multiplier

In economics, a factor that quantifies the impact of an initial change in spending, income, or investment on the broader economy, amplifying the initial effect.

Inflationary Gap

A macroeconomic term referring to the situation where the demand for goods exceeds the supply, leading to increased prices or inflation.

Inflationary Gap

A situation where aggregate demand in an economy exceeds aggregate supply at the full employment level, leading to inflation.

Equilibrium GDP

The level of real GDP at which the total quantity of goods and services produced equals the total quantity of goods and services purchased.