Answer :
A fixed exchange-rate system is a type of economic policy where a country's currency value is tied or 'pegged' to another major currency or basket of currencies. This system has various implications for a country's economy.
Less disruption from monetary shocks: In a fixed exchange-rate system, exchange rates are stable, which reduces the uncertainty and variability that can arise from unexpected changes in exchange rates. This stability helps protect economies from external monetary shocks, making economic forecasting and planning more reliable.
Higher levels of international transactions: By stabilizing exchange rates, a fixed exchange-rate system makes it easier for countries to trade with one another. Businesses can plan for costs and revenues without worrying about fluctuating currency values. This predictability encourages international trade and investment.
A discipline effect on high-inflation countries: Countries with fixed exchange rates cannot freely adjust their monetary policy without affecting the fixed rate. This limitation imposes a discipline on policy making, particularly for high-inflation countries, forcing them to adopt measures that maintain their currency's fixed value, often leading to inflation control.
Different macroeconomic goals across countries: This is the exception. A fixed exchange-rate system is typically restrictive in allowing individual countries to pursue distinct national macroeconomic policies. With a fixed currency, countries sacrifice some monetary policy autonomy, as they must focus primarily on maintaining the exchange rate. As a result, pursuing unique macroeconomic goals is constrained, while the focus is more on maintaining stable exchange rates.
Therefore, the answer is option 4: Different macroeconomic goals across countries.
