If a country adopts a fixed rate, it is committing not to engage in inflationary policies because inflationary policies would destabilize the exchange rate.

Question

Quizplus · Accepted Answer

Adopting a fixed rate means that the exchange rate is fixed to a certain value, usually the value of another currency such as the US dollar. In order to maintain this fixed rate, the government must not engage in inflationary policies as this would decrease the value of their currency and destabilize the exchange rate. Therefore, adopting a fixed rate does commit a country to avoiding inflationary policies.

If a Country Adopts a Fixed Rate, It Is Committing