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Discuss whether a government should operate a fixed exchange rate system.
The points against fixed exchange rate include : Against this is the need to keep large currency reserves, the need to introduce deflationary
policies which may harm other economic aims, the tendency to maintain an overvalued rate
and the limits on using monetary policy. Fixed rates have become less common because of
the lack of an automatic adjustment and the move to a more robust market system.
^ as in the mark scheme.
1why would there be a need to introduce deflationary policies. and why would monetary policy have to be used ?
The points against fixed exchange rate include : Against this is the need to keep large currency reserves, the need to introduce deflationary
policies which may harm other economic aims, the tendency to maintain an overvalued rate
and the limits on using monetary policy. Fixed rates have become less common because of
the lack of an automatic adjustment and the move to a more robust market system.
^ as in the mark scheme.
1why would there be a need to introduce deflationary policies. and why would monetary policy have to be used ?