Questions: A country wants to make sure that its economy remains stable. Its leaders worry that allowing market forces to increase or decrease the value of the country's currency could lead to instability and disrupt economic growth. As a result, the country decides to tie the value of its currency directly to the U.S. dollar. If the dollar becomes more valuable, the country's currency will increase in value. If the dollar declines, the country's currency will decline as well. This economic situation is an example of a: A. trade-weighted exchange rate. B. flexible exchange rate. C. fixed exchange rate. D. deficit-weighted exchange rate.

The answer is C. fixed exchange rate.

A trade-weighted exchange rate is an index that measures the value of a country's currency relative to the currencies of its major trading partners. It is not directly tied to a single currency like the U.S. dollar.

A flexible exchange rate, also known as a floating exchange rate, is determined by market forces without direct government or central bank intervention. The value of the currency fluctuates based on supply and demand in the foreign exchange market.

A fixed exchange rate, also known as a pegged exchange rate, is a system where a country's currency value is tied or pegged to another major currency, such as the U.S. dollar. This means the currency's value will move in tandem with the value of the pegged currency, providing stability and predictability.

There is no widely recognized economic term known as a deficit-weighted exchange rate. This option does not apply to the described situation.

In this scenario, the country is tying its currency directly to the U.S. dollar, which is a classic example of a fixed exchange rate system.