Which scenario best demonstrates the benefits of a fixed exchange rate system?
(A)
A country experiencing a recession fixes its currency to that of a country in which interest rates are low.
(B)
A country experiencing a boom fixes its currency to that of a country experiencing a recession.
(C)
A country experiencing a recession fixes its exchange rate above the equilibrium rate.
(D)
A country experiencing a boom fixes its exchange rate below the equilibrium rate.
Through the process of elimination, i got the answer but, I still dont really get why its right.
The answer is B, but, doesnt an increase in capital expenditure mean that theres going to be higher unemployment since machines/equipment replace workers. or have i got the wrong meaning for capital :S
(A)
A country experiencing a recession fixes its currency to that of a country in which interest rates are low.
(B)
A country experiencing a boom fixes its currency to that of a country experiencing a recession.
(C)
A country experiencing a recession fixes its exchange rate above the equilibrium rate.
(D)
A country experiencing a boom fixes its exchange rate below the equilibrium rate.
Through the process of elimination, i got the answer but, I still dont really get why its right.
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The answer is B, but, doesnt an increase in capital expenditure mean that theres going to be higher unemployment since machines/equipment replace workers. or have i got the wrong meaning for capital :S