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 floating exchange rates argued that countries would have more control over their own monetary policy and could choose their own long-run inflation rate (A), exchange rates would be set based on market forces rather than government decisions (D), and governments would not need to export inflation (E). They also believed that parity changes and speculative attacks would still be possible (B), but did not argue that this system would force countries to work cooperatively in deciding monetary policy (C). In fact, floating exchange rates are often criticized for exacerbating international economic instability and making cooperation more challenging.

Supporters of a Floating Exchange Rate Cited All of the Following