The biggest disadvantage of a fixed exchange rate is the
A)increased probability of high inflation.
B)tradeoff between supporting the exchange rate and adjusting the trade balance.
C)tradeoff between supporting the exchange rate and maintaining economic growth.
D)tradeoff between supporting the exchange rate and maintaining a balanced budget.

Question

Quizplus · Accepted Answer

The primary disadvantage of a fixed exchange rate system is the tradeoff between supporting the exchange rate and maintaining economic growth. This is because a country must often use its monetary policy to maintain its fixed exchange rate, which can limit its ability to address domestic economic issues such as growth.

The Biggest Disadvantage of a Fixed Exchange Rate Is the