One of the Advantages of Adopting a Fixed Exchange Rate

question 390

Multiple Choice

One of the advantages of adopting a fixed exchange rate system is that it:

• A) reduces uncertainty.
• B) reduces the need for fiscal policy.
• C) increases the strength of monetary policy.
• D) does not require the country to maintain any large foreign exchange reserve.

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Definitions:

Discount Rate

The rate of interest that central banks impose on the credits they extend to commercial banks or financial entities.

Planned Investment

The amount of spending by businesses on capital goods, such as new equipment and buildings, that is intended for future use and production.

Monetary Policy

The process by which the monetary authority of a country controls the supply of money, often targeting an inflation rate or interest rate to ensure stability and economic growth.

Interest Rates

Interest rates are the cost of borrowing money or the reward for saving, determined by the supply and demand for credit, inflation, and central bank policies. This rate impacts consumer spending, investment, and economic growth.