A reason why fixed exchange rate systems might lower growth is that
A)inflation may be higher.
B)monetary policy cannot be used.
C)they are more risky.
D)they deter international trade.

Question

Quizplus · Accepted Answer

In fixed exchange rate systems, monetary policy cannot be used effectively as the central bank has to maintain the exchange rate within a certain range. This constraint on monetary policy can limit the ability to respond to shocks and can hinder growth. Inflation may actually be lower in fixed exchange rate systems as they often require tight monetary policy to maintain the exchange rate, but this is not a significant factor in limiting growth. Fixed exchange rate systems may be more risky, but this is not the primary reason why they can limit growth. They do not necessarily deter international trade.

A Reason Why Fixed Exchange Rate Systems Might Lower Growth