Supporters of a floating exchange rate cited all of the following as advantages over the Bretton Woods system EXCEPT
A) each country would be able to choose its own long-run inflation rate.
B) parity changes and speculative attacks would no longer be possible.
C) countries would be forced to work cooperatively in deciding monetary policy.
D) exchange rates would be set symmetrically in foreign markets rather than by government decision.
E) governments would not need to export inflation to decrease domestic unemployment.

Question

Quizplus · Accepted Answer

Supporters of a floating exchange rate believed that it would allow exchange rates to be set symmetrically in foreign markets rather than by government decision (D), eliminate the need for governments to export inflation to decrease domestic unemployment (E), and allow each country to choose its own long-run inflation rate (A). They also argued that parity changes and speculative attacks would no longer be possible (B). The Bretton Woods system, on the other hand, required countries to work cooperatively in deciding monetary policy (C), which was not viewed as an advantage by supporters of a floating exchange rate.

Supporters of a Floating Exchange Rate Cited All of the Following