Economic experience since 1973 indicates that, under floating exchange rates
A) large and persistent departures from external balance were not prevented.
B) large and persistent departures from external balance were prevented.
C) changes in exchange rates failed to act as automatic stabilizers.
D) reduced monetary policy autonomy.
E) monetary policy autonomy was protected.

Question

Quizplus · Accepted Answer

Economic experience since 1973 has shown that under floating exchange rates, large and persistent departures from external balance were not prevented. This is because floating exchange rates allow market forces to determine the value of a currency, which can lead to large imbalances in trade and capital flows, and make it difficult for countries to maintain external balance.

Economic Experience Since 1973 Indicates That, Under Floating Exchange Rates