In a freely floating exchange rate system, high U.S. inflation rate may be magnified. This is because the depreciation of the dollar would result in more expensive foreign imports, thus reducing foreign competition.

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In a freely floating exchange rate system, the value of the currency is determined by the market forces of supply and demand. If there is high inflation in the U.S., the value of the dollar may depreciate, which would make foreign imports more expensive. As a result, domestic producers may face less competition from foreign goods, which could allow them to raise prices and further contribute to inflation. Therefore, high U.S. inflation rate may be magnified under a freely floating exchange rate system.

In a Freely Floating Exchange Rate System, High U