Which of the following is true?
A)One disadvantage of the Bretton Woods Accord was the resulting increase in exchange rate risk.
B)One advantage of a fixed exchange rate system was that the act of having to buy back one's own currency to maintain fixed exchange rates enhanced the ability of foreign countries to pursue their own monetary policies.
C)Under fixed exchange rates, a country pursuing contractionary monetary policy would be expected to experience decreased net exports and capital outflows.
D)Under the Bretton Woods Accord, as long as foreign central banks were accumulating dollars to serve as international reserves, the U.S. could pursue expansionary domestic policies that resulted in deficits on current and capital accounts without worrying about exchange rate pressures on the dollar or other foreign currencies.

Question

Quizplus · Accepted Answer

Under the Bretton Woods Accord, the U.S. could pursue expansionary domestic policies that resulted in deficits on current and capital accounts as long as foreign central banks were accumulating dollars to serve as international reserves, without worrying about exchange rate pressures on the dollar or other foreign currencies. This was one of the advantages of the fixed exchange rate system. Option A is incorrect because the Bretton Woods Accord actually reduced exchange rate risk. Option B is incorrect because it is unclear how fixing exchange rates would enhance the ability of foreign countries to pursue their own monetary policies. Option C is incorrect because under fixed exchange rates, contractionary monetary policy would be expected to reduce imports and increase the current account surplus, not decrease net exports and increase capital outflows.

Which of the Following Is True