A Major Advantage of the System of Flexible Exchange Rates

question 3

Multiple Choice

A major advantage of the system of flexible exchange rates (as opposed to fixed exchange rates) is commonly thought to be

• A) the likelihood that external monetary shocks will not influence domestic national Income under flexible exchange rates.
• B) the strong possibility that the greater exchange rate risk under flexible rates will Increase the volume of international trade.
• C) the enhanced effectiveness of monetary policy in influencing national income under Flexible exchange rates.
• D) the "virtuous circle" that flexible rates can bring between depreciation and inflation.

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