A common argument for fixed exchange rates is that they
A)give central banks greater freedom in adjusting their economy's level of output.
B)forever free the central bank from have to adjust the exchange rate to fundamental changes in the economy.
C)make trade more costly, and thus encourage domestic citizens to buy domestically produced output.
D)all of the above
E) none of the above

Question

Quizplus · Accepted Answer

None of the given options are accurate explanations for the argument in favor of fixed exchange rates. The actual argument often made for fixed exchange rates is that they provide stability and predictability in international trade and investment, which can encourage economic growth and reduce risk for businesses and investors. However, there are also drawbacks to fixed exchange rates, including the potential lack of flexibility in responding to economic shocks and the risk of speculative attacks on the currency.

A Common Argument for Fixed Exchange Rates Is That They