Which of the following is an argument for a fixed exchange rate system?
A)Governments can contract their money supply without worrying about the need to maintain parity.
B)Trade balance adjustments do not require the intervention of the International Monetary Fund.
C)It ensures that governments do not expand the monetary supply too rapidly, thus causing high price inflation.
D)Speculations in exchange rates boost exports and reduce imports.
E)Each country should be allowed to choose its own inflation rate.

Question

Quizplus · Accepted Answer

The need to maintain fixed exchange rate parity ensures that governments do not expand their money supplies at inflationary rates. Advocates of fixed rates argue that governments all too often give in to political pressures and expand the monetary supply far too rapidly, causing unacceptably high price inflation. A fixed exchange rate regime would ensure that this does not occur.

Which of the Following Is an Argument for a Fixed