Which of the Following Is a Drawback of a Floating

question 15

Multiple Choice

Which of the following is a drawback of a floating exchange-rate system?

• A)Inflation is fully transmitted from one country having a higher rate of inflation to another one having a relatively lower rate.
• B)Monetary policy is ineffective in raising aggregate demand since it cannot be directed toward achieving internal balance.
• C)Overshooting of exchange rates may cause excessive resource shifts into and out of trade oriented industries.
• D)Adverse foreign trade shocks are especially damaging since any intervention by the central bank adds to the recession.