Which of the following is true of a system of fixed exchange-rates adopted by many countries?
A)For each of these countries, monetary policy can be a powerful policy tool in managing aggregate demand.
B)The countries will have large differences in their inflation rates.
C)The goals and policies can differ substantially across the countries.
D)The relative stability can promote higher levels of international trade.

Question

Quizplus · Accepted Answer

A system of fixed exchange-rates adopted by many countries can promote relative stability, which in turn can promote higher levels of international trade. However, in such a system, the countries are likely to have large differences in their inflation rates, and their goals and policies can differ substantially. Monetary policy may not be a powerful tool in managing aggregate demand in such a system, as the exchange rate is fixed.

Which of the Following Is True of a System of Fixed