What Action Did President Nixon Take to Enable Devaluation of the Dollar

question 82

Multiple Choice

What action did President Nixon take to enable devaluation of the dollar during the increase in U.S. inflation in 1971?

• A) The IMF member countries would adopt the gold standard to fix exchange rates.
• B) The United States would no longer support the World Bank.
• C) A new 15 percent tax would be charged on U.S. exports.
• D) The dollar would no longer be convertible into gold.
• E) German deutsche marks would be the new reference currency.

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Definitions:

Purchasing Power Parity

An economic theory that compares different countries' currencies through a "basket of goods" approach, aiming to determine the adjustments needed to make the exchange rates of two currencies equal.

Basket of Goods

Is a selected set of products and services whose prices are tracked to measure inflation or cost of living changes in an economy over time.

Equilibrium Exchange Rate

The exchange rate at which the demand for a currency exactly matches its supply, resulting in stable market conditions without the need for official intervention.

Purchasing Power Parity

An economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency's purchasing power.