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Your study partner asks you, "If central banks lose the ability to use discretionary monetary policy under fixed exchange rates, why would nations agree to a fixed exchange rate system?" How do you respond?
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Chapter 19
Open-Economy Macroeconomics
The Real Economy in the Long Run
The Macroeconomics of Open Economies
Short-Run Economic Fluctuations
Final Thoughts
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Your study partner asks you if central banks lose the ability to use discretionary monetary policy under fixed exchange rates, why would nations agree to fixed exchange rate system? How do you respond, given that if central banks lose the ability to use discretionary monetary policy under fixed exchange rates? And the nations agreed to a fixed exchange rate system, because the government will be prevented from engaging in any inflationary prices and they'll be reduced uncertainty regarding the value of the country's currency. The government will be prevented from engaging in inflationary prices policies, and there will be reduced uncertainty regarding the values of the country's currency.
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