Under a fixed-rate system,a country that followed policies leading to a lower inflation rate than that experienced by its trading partners would
A)come under pressure to expand its money supply
B)restrict the growth of its money supply
C)experience a balance-of-payments deficit
D)be forced to buy its currency in the foreign exchange market

Question

Quizplus · Accepted Answer

Under a fixed-rate system, a country with a lower inflation rate than its trading partners will see its currency become overvalued, making its exports more expensive and imports cheaper. This can lead to a surplus in the balance of payments, putting pressure on the country to expand its money supply to maintain the fixed exchange rate, by making its currency more available and thus cheaper.

Under a Fixed-Rate System,a Country That Followed Policies Leading to a Lower