The type of exchange rate a country uses affects how well it can handle a sudden increase in foreign aid. If a country fixes its exchange rate, it can absorb most of the aid without causing problems, but it will lead to higher inflation. On the other hand, if a country allows its exchange rate to float, it can also absorb aid effectively, but without the inflation increase. However, policies that limit aid absorption and lead to large reserve accumulation are not good for the economy in the long run. They may help prevent inflation and currency appreciation, but at the cost of reducing private spending and investment, which can harm economic growth.