The downsides of utilizing a fixed currency include its:Arelative lack of use worldwide.Breliance on a finite resource, such as gold.Cstability, due to having a value established against a precious metal.Dinability to influence the currency with monetary policy.
Question
The downsides of utilizing a fixed currency include its:Arelative lack of use worldwide.Breliance on a finite resource, such as gold.Cstability, due to having a value established against a precious metal.Dinability to influence the currency with monetary policy.
Solution
The downsides of utilizing a fixed currency include:
A. Relative lack of use worldwide: Fixed currencies are not widely used around the world. Most countries use fiat currencies, which are not backed by a physical commodity like gold or silver. This can make it difficult to exchange a fixed currency for a fiat currency, especially in countries that do not recognize or use the fixed currency.
B. Reliance on a finite resource, such as gold: Fixed currencies are typically backed by a physical commodity, such as gold. This means that the value of the currency is directly tied to the value of the commodity. If the value of the commodity decreases, so does the value of the currency. Additionally, because commodities are finite resources, there is a limit to how much currency can be produced.
C. Stability, due to having a value established against a precious metal: While this can be seen as a benefit, it can also be a downside. Because the value of the currency is tied to a precious metal, it is not as flexible as a fiat currency. This can make it difficult for a country to respond to economic changes or crises.
D. Inability to influence the currency with monetary policy: With a fixed currency, a country's central bank cannot use monetary policy to influence the economy. This means that the central bank cannot adjust interest rates or control inflation by changing the amount of currency in circulation. This can make it more difficult for a country to manage its economy.
Similar Questions
23. The major problem of a currency that is fractionally backed and convertible into a precious metalis that ofA) clipping, which debases the metal coins.B) counterfeiting.C) maintaining its convertability into the metal.D) paper money being less durable than gold.E) perennial shortages of paper currency
Some economists suggest that one benefit of adopting a fixed-exchange-rate regime is that it forces the central bank to:prevent excessive increases in the money supply.use money supply changes as the main policy tool to keep the economy at full employment.keep inflation rates to zero percent.allow the money supply to grow unchecked.
What is the disadvantage of the gold standard as a monetary policy?(2 Points) Gold always maintains its value.Gold is never scarce, leading to overvaluation of money.Gold's value is unstable.
The biggest demerit of having paper money as currency is that itA. brings inflation to the economy.B. causes deficit in balance of payment.C. adversely affects an agrarian economy.D. demotivates producers to produce goods and services.
A rapidly growing trade deficit affects a country's currency by:A.causing its value to drop relative to other currencies.B.allowing its value to inflate at a rate determined by the country.C.causing it to use a fixed rather than a flexible exchange rate.D.preventing it from being used in international trade.
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.