Question 5 One argument for a fixed exchange rate system is that 1.25 pts it ensures that governments do not expand the monetary supply too rapidly, thus causing high price inflation. speculations in exchange rates boost exports and reduce imports. governments can contract their money supply without worrying about the need to maintain parity. each country should be allowed to choose its own inflation rate. trade balance adjustments do not require the intervention of the International Monetary Fund.
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This is because with a fixed exchange rate, governments are limited in their ability to manipulate their currency and are therefore less likely to engage in excessive money printing which can lead to inflation. Show more…
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