When most shocks to the economy are external,it is generally better to have
A)a flexible rate system.
B)a hard peg.
C)a soft peg.
D)a crawling peg.

Question

Quizplus · Accepted Answer

When shocks to the economy are external, a flexible exchange rate system allows the currency to adjust to external events, such as changes in the demand for exports or fluctuations in the price of imported goods. A flexible rate system is less vulnerable to sudden changes in the external environment than a fixed exchange rate system, which can become overvalued or undervalued and result in an economic crisis. A hard peg, a soft peg, and a crawling peg would all limit the flexibility of the exchange rate and could potentially exacerbate the impact of external shocks.

When Most Shocks to the Economy Are External,it Is Generally