Question

Check My Work ​Consider two countries that trade with each other, called X and Y. According to the text, inflation in Country X will have a greater impact on inflation in Country Y under the ____ system. Now, consider two other countries that trade with each other, called A and B. Unemployment in Country A will have a greater impact on unemployment in Country B under the ____ system.

Answer 1

Answer:

• fixed exchange rate
• fixed exchange rate

Explanation:

Some of the major disadvantages of fixed exchange rates are:

• Under-valued or over-valued currencies cannot be adjusted.  
• The adjustments on interest rates have a limited effect on economic growth.
• A lot of reserves are needed to support the currency's fixed rate.

Due to the previously stated disadvantages, when the exchange rates between trading countries are fixed, both inflation and unemployment rates of one country will have a significant effect on the other country.