The Republic of Argus has a fixed exchange rate regime.What would be the result if the Republic of Argus rapidly increased its money supply by printing currency?
A)It would lead to an increase in the worth of the currency.
B)The prices of imports would become more attractive in the country.
C)The country's goods would be highly competitive in world markets.
D)Trade surplus in the country would increase.
E)It would lead to price deflation in the country.

Question

Quizplus · Accepted Answer

Increasing the money supply in a fixed exchange rate regime can lead to inflation, making imports cheaper relative to domestic goods, thus making them more attractive.

The Republic of Argus Has a Fixed Exchange Rate Regime