How would you best describe the fixed exchange rate regime? Select one – the most appropriate answer.

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BlackTom AI · Accepted Answer

Let's break down each option to see what it asserts about a fixed exchange rate regime and then assess consistency across them.
Option 1 states: 'Such regime implies that a country’s monetary authority commits to keeping exchange rate of its domestic currency at a fixed level.' This captures the core idea of a fixed (or pegged) regime—the central bank or monetary authority commits to maintaining the exchange rate at a specified target. That description is accurate as a defining characteristic of fixed regimes.
Option 2 says: 'All answers are correct.' To evaluate this, we must check each of the other statements for accuracy and completeness. If multiple statements are true, then this all-encompassing option could be plausible.
Option 3 asserts: 'All answers are wrong.' This would be the case only if none of the statements were true. Given Option 1 appears correct, Option 3 is unlikely to hold.
Option 4 claims: 'This regime means that economic decisionmakers can always expect that the future exchange rate of their domestic currency will remain unchanged compared to its current level.' This is a nuanced way of expressing predictability under fixed regimes: if the rate is pegged, market participants reasonably expect minimal or no change in the near term, though in practice there might be adjustments under certain conditions. The essence of a fixed regime supports this expectation, though it may not imply absolute certainty forever.
Option 5 states: 'This foreign exchange rate regime implies that a currency’s exchange rate is fixed by a country’s monetary authorities in a given range and is kept in this range.' This describes a pegged regime that targets a narrow band or corridor around a central rate, which is indeed a common characterization of a fixed or crawling-peg/Crawling band style arrangement. The idea of a range or band is consistent with some fixed regimes and is a valid variant within the broader fixed-rate category.
Option 6: 'Foreign exchange rate regime of this type means that a country’s currency is pegged to another currency or a basket of currencies.' This is a classic and precise description of a fixed-rate regime, where the central bank maintains a peg to a specific currency (or a basket), rather than allowing free flotation. It aligns with standard definitions.
Now, weighing the options collectively: Option 1 accurately describes the commitment to a fixed level. Option 4’s phrasing about expectations of future rates aligns with the stabilizing intent of fixed regimes, though it may be interpreted as a probabilistic expectation rather than a guarantee. Option 5’s mention of a fixed range within which the rate is kept is a valid variant in which the rate is not a single fixed number but confined to a band, which some fixed regimes use. Option 6 directly captures the pegged nature to another currency or basket. Option 3 is at odds with the apparent truths of the others. Option 2 would be true only if all the other statements are indeed correct.
Considering these points, several of the statements (1, 4, 5, and 6) reflect accurate aspects of fixed exchange rate regimes, while 3 is incorrect. Therefore, the statement that encompasses all correct aspects—Option 2—becomes consistent with the alignment of the other true statements. In other words, if multiple precise descriptions (1, 4, 5, 6) hold true, the assertion 'All answers are correct' is compatible with the identified truths across the options.
In summary, analyzing the content of each option shows that the majority reflect valid features of a fixed exchange rate regime, while the third option is inaccurate, and the second option coherently aggregates the correctness of the rest. This reasoning supports choosing Option 2 as the best overall descriptor among the given choices.

econ_420_120255_249094 Lesson 15 Quiz

How would you best describe the fixed exchange rate regime? Select one – the most appropriate answer.

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