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EMERGENCY PLEASE ........................................ Why is fixed exchange rate system preferable when there is a pressure of...

EMERGENCY PLEASE ........................................

Why is fixed exchange rate system preferable when there is a pressure of depreciation to the local currency and the need of expansionary monetary policy to fight recession?

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Expert Solution

Fixed exchange rate system is always preferable in case where Government is planning ab expansionary monetary policy to encounter recession.

In this system the rate of exchange is in total control with the government and is not affected by Supply or demand of money in the economy. So it will help to prevent the adverse effects of Depreciation and inflation due to increased supply of money (of government adopts fixed exchange rate system instead of Floating system.)

Rahul Sunny answered 2 years ago
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