When the government fixes its exchange rate
A) it creates an unfavorable balance of trade
B) it creates trade surpluses
C) it does so to allow the exchange rate to reach equilibrium
D) it acts as an arbitrager
E) it is not unlike a government policy to control agricultural prices

Question

Quizplus · Accepted Answer

When a government fixes its exchange rate, it is similar to other forms of government intervention in markets, such as policies to control agricultural prices. Both involve setting prices at artificial levels rather than allowing them to be determined by market forces.

When the Government Fixes Its Exchange Rate