Which of the following arguments is in favor of floating exchange rates?
A) A country's ability to expand or contract its money supply should be limited by the need to maintain exchange rate parity.
B) Maintaining balance of trade equilibrium is not in the best interest of a country.
C) Countries can isolate themselves from uncertainties when they trade using a mutually agreed on exchange rate.
D) Governments can restore monetary control by removing the obligation to maintain exchange rate parity.

Question

Quizplus · Accepted Answer

Advocates of a floating exchange rate regime argue that removal of the obligation to maintain exchange rate parity would restore monetary control to a government. If a government faced with unemployment wanted to increase its money supply to stimulate domestic demand and reduce unemployment, it could do so unencumbered by the need to maintain its exchange rate.

Which of the Following Arguments Is in Favor of Floating