Major Drawbacks of a Fixed Exchange Rate Do NOT Include

question 117

Multiple Choice

Major drawbacks of a fixed exchange rate do NOT include:

• A) exchange controls must be imposed at the cost of administrative red tape and corruption.
• B) resources must be diverted to the accumulation of large foreign exchange reserves.
• C) monetary policy cannot be used to stabilize output and the inflation rate.
• D) commerce among countries is more uncertain and riskier.

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Definitions:

Economies of Scale

Economies of scale occur when a company reduces costs per unit due to an increase in production, typically achieved through operational efficiency and larger volume production.

Constant Returns to Scale

A situation in production where increasing all inputs by a certain factor results in output increasing by the same factor, indicating proportionate scalability.

AP

Advance Placement; a program in the United States and Canada offering college-level curriculum and examinations to high school students.

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.