Author Question: What is the drawback for a country that chooses to fix its exchange rate? a. Fixing the exchange ... (Read 41 times)

daltonest1984 · **on:** Jun 30, 2018

What is the drawback for a country that chooses to fix its exchange rate?
a. Fixing the exchange rate can deteriorate the international competitiveness because the real exchange rate can't fluctuate anymore.
b. Businesses in the country are more exposed to business risks associated with exchange rate changes.
c. The central bank loses its ability to influence the money supply, unless severe capital controls are imposed.
d. Fixing the exchange rate has no disadvantages and should be adopted by all countries.

Question 2

Cashing out capital gains in Virtual Currency System 3 (i.e., turning virtual capital gains into real world currencies) causes the nation's:
a. Monetary base to rise.
b. M2 money supply to rise.
c. M2 money multiplier to rise.
d. Monetary base to remain the same.