China has fixed the exchange rate between the yuan and the U.S. dollar. Therefore, a recession in China _____ U.S. _____ to China more than if the exchange rate floated.

Question

Quizplus · Accepted Answer

A recession in China would lead to a decrease in demand for imports, as consumers have less purchasing power. With a fixed exchange rate, the value of the yuan would remain stable regardless of this decrease in demand, which would make Chinese exports more expensive for U.S. consumers. Therefore, a recession in China would reduce U.S. exports to China more than if the exchange rate were allowed to float.

China Has Fixed the Exchange Rate Between the Yuan and the U.S