The biggest disadvantage of a fixed exchange rate is the
A)increased probability of high inflation.
B)tradeoff between supporting the exchange rate and adjusting the trade balance.
C)tradeoff between supporting the exchange rate and maintaining economic growth.
D)increased probability of a trade deficit.
E)tradeoff between supporting the exchange rate and maintaining a balanced budget.

Question

Quizplus · Accepted Answer

A fixed exchange rate can limit a country's ability to use monetary policy to stimulate economic growth, as maintaining the exchange rate may require high interest rates or other measures that can slow down the economy.

The Biggest Disadvantage of a Fixed Exchange Rate Is the