Author Question: Supporters of a floating exchange rate cited all of the following as advantages over the Bretton ... (Read 116 times)

V@ndy87 · **on:** Jun 30, 2018

Supporters of a floating exchange rate cited all of the following as advantages over the Bretton Woods system EXCEPT

A) each country would be able to choose its own long run inflation rate.
B) parity changes and speculative attacks would no longer be possible.
C) countries would be forced to work cooperatively in deciding monetary policy.
D) exchange rates would be set symmetrically in foreign markets rather than by government decision.
E) governments would not need to export inflation to decrease domestic unemployment.

Question 2

Explain why the EMS countries decided to fix their exchange rates against the German DM.

What will be an ideal response?

javimendoza7 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

C

Answer to Question 2

In this way, the other EMS countries in effect imported the credibility of the German central bank in fighting inflation, thus discouraging the development of inflationary pressures at home.