Research in the performance of developing nations with exchange rate pegs has shown that:
A) fixed exchange rates are 100% effective in curbing inflation and preventing hyperinflation.
B) fixed exchange rates are 100% ineffective in curbing inflation and preventing hyperinflation.
C) floating exchange rates are more effective in curbing inflation and preventing hyperinflation.
D) fixed exchange rates are neither necessary nor sufficient to curb inflation and prevent hyperinflation.

Question

Quizplus · Accepted Answer

Research has shown that fixed exchange rates are neither necessary nor sufficient to curb inflation and prevent hyperinflation. The effectiveness of exchange rate pegs in developing nations varies depending on the specific circumstances, including the level of fiscal discipline and economic stability in the country. Floating exchange rates can offer more flexibility in responding to economic shocks, but they may also increase currency volatility and raise transaction costs. Therefore, the effectiveness of exchange rate regimes should be evaluated based on the specific context and goals of the economy.

Research in the Performance of Developing Nations with Exchange Rate