Under floating exchange rates,
A) domestic inflation rates are inex o rably linked across national boundari e s .
B) domestic inflation in one country can lead to inflation in another, even if the exchange rate moves to preserve purchasing power parity.
C) domestic inflation is dictated outside the bounds that would have constrained prices in a fixed-rate regime.
D) domestic economies are insulated from the effects of macroeconomic policies in another country.
E) domestic economies enjoy much greater freedom to use monetary policy for stabilization purposes.

Question

Quizplus · Accepted Answer

Under floating exchange rates, countries have more autonomy over their monetary policy, allowing them to use it for domestic stabilization without being constrained by the need to maintain a fixed exchange rate.

Under Floating Exchange Rates