If central banks were no longer obliged to intervene in currency ...

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If central banks were no longer obliged to intervene in currency markets to fix exchange rates, governments would be able to use monetary policy to reach
 
  A) internal balance.
  B) external balance.
  C) internal and external balance.
  D) internal but not external balance.
  E) external but not internal balance.

Question 2

Which one of the following is/are INCORRECT? An argument against floating exchange rates is that
 
  A) a fixed rate automatically prevents instability in the domestic money market from affecting the economy if shocks come from home domestic money market.
  B) a fixed rate might become unpredictable, complicating economic planning.
  C) a rise in money demand under a fixed exchange rate would have no effect on the exchange rate and output.
  D) a fixed rate functions within the price-specie-flow mechanism and maintains a balance of payments equilibrium.
  E) a fixed rate automatically prevents instability in the economy from output market shocks.

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Answer to Question 1

C

Answer to Question 2

E

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