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Author Question: The mechanism behind the inflation insulation provided by a floating exchange rate is A) ... (Read 212 times)

krzymel

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on: Jun 30, 2018
The mechanism behind the inflation insulation provided by a floating exchange rate is
 
  A) Purchasing Power Parity.
  B) a fixed AA curve.
  C) market speculation.
  D) tight monetary policy.
  E) symmetry.

Question 2

Explain the credibility theory of the EMS.
 
  What will be an ideal response?


cadimas

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Reply #1 on: Jun 30, 2018
Answer to Question 1

A

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. This is known as the credibility theory of the EMS.


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