In theory with flexible exchange rates should allow countries to conduct _______
ID: 1194581 • Letter: I
Question
In theory with flexible exchange rates should allow countries to conduct ________ monetary and fiscal policies, exchange rates, but paradoxically the experience of the relatively flexible exchange rates of the 1970's suggests that such policies caused exchange rate ________.
coordinated; stable; instability
independent; stable; instability
managed; unstable; stability
targeted; unstable; stability
A)coordinated; stable; instability
B)independent; stable; instability
C)managed; unstable; stability
D)targeted; unstable; stability
Explanation / Answer
Generally monetary policy can not be taken up independently if a country pursue the policy of fixed exchange rate. But in the flexible exchange rate system, everything in foreign exchange market is decided by the demand and supply forces of foreign exchange, thus central bank can adopt the monetary policy independently focussing on inflation. But such results were not relevant during the 1970s when there was instability in exchange rates.
Hence correct answer is (B)