Under a fixed exchange rate system, U.S. inflation would have a greater impact on inflation in other countries than it would under a freely floating exchange rate system.

Question

Quizplus · Accepted Answer

Under a fixed exchange rate system, the exchange rate between the U.S. dollar and other currencies is fixed, therefore, any change in U.S. inflation would have a direct impact on the prices of imported goods from foreign countries, causing inflation in those countries. On the other hand, under a freely floating exchange rate system, exchange rates fluctuate based on market forces, which can help buffer the impact of U.S. inflation on other countries.

Under a Fixed Exchange Rate System, U