Which of the following is true?
A. If capital is highly mobile, fiscal policy then loses its effectiveness under a fixed exchange rate.
B. Fixed exchange rates encourage countries to have different goals, priorities, and policies with respect to macroeconomic variables.
C. Countries that want to have a fixed exchange-rate regime should be willing to refrain from policy changes that lead to large international capital flows.
D. For a floating exchange rate to work for a country, it cannot have an inflation rate that is much above the inflation rate(s) of its primary trading partners.
Answer: C
You might also like to view...
What is a major disadvantage of a centrally planned economy?
(A) Its military forces are too weak to be effective. (B) It offers too many choices for consumers. (C) It cannot meet consumers' needs and wants. (D) It has no control over which goods and services are provided.
In the real world, the K/Y ratio
A) is much higher in rich countries than in poor countries. B) is much lower in rich countries than in poor countries. C) is roughly equal across rich and poor countries. D) cannot be properly compared except between countries of similar income levels.