In the example of the peg between Britain and Germany, what would have been the case if Britain had adhered to the pegged exchange rate?
A) It would not have had the option of raising its own rate.
B) It would have been able to inflate its currency to keep output stable.
C) It would not have been able to inflate its currency to keep output stable.
D) It would have had to raise taxes and balance its budget.

Question

Quizplus · Accepted Answer

If Britain had adhered to the pegged exchange rate, it would not have been able to inflate its currency to keep output stable. This is because the exchange rate would have been fixed, and any attempt to inflate the currency would have resulted in an increase in prices and a loss of competitiveness with Germany. Therefore, Britain would have had to find other ways to manage its economy, such as through fiscal policy measures like raising taxes or balancing its budget.

In the Example of the Peg Between Britain and Germany