The Credibility Theory of the EMS Implies in Effect That

question 40

Multiple Choice

The credibility theory of the EMS implies in effect that the political costs of violating international exchange rate agreements

• A) cannot restrain governments from depreciating their currency to gain the short-term advantage of an economic boom at the long-term cost of higher inflation.
• B) can restrain governments from depreciating their currency to gain the short-term advantage of an economic boom at the long-term cost of higher inflation.
• C) cannot restrain governments from depreciating their currency in the short run.
• D) cannot restrain governments from depreciating their currency in the long run.
• E) cannot restrain governments from depreciating their currency to gain the long-term advantage of an economic boom.

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