Which of the following is not an advantage of a fixed exchange rate system?
A)Inflation is somewhat self-correcting.
B)Central banks can more easily engage in expansionary policy even if other countries do not.
C)Unemployment is somewhat self-correcting.
D)Exchange rate risk is reduced.

Question

Quizplus · Accepted Answer

Central banks cannot engage in expansionary policy as easily under a fixed exchange rate system because they must maintain the exchange rate peg. If they increase the money supply too much, it can lead to an outflow of capital and a decrease in the value of the currency, which would violate the peg. Therefore, this choice is not an advantage of a fixed exchange rate system.

Which of the Following Is Not an Advantage of a Fixed