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Chapter 28: Problem 15

The United States a. was on a fixed exchange rate system prior to late 1971 , but now is on a flexible exchange rate system. b. has been on a fixed exchange rate system since 1945 c. has been on a flexible exchange rate system since 1945 d. was on a flexible exchange rate system prior to late \(1983,\) but now is on a fixed exchange rate system.

Short Answer

Expert verified
The United States was on a fixed exchange rate system prior to late 1971, but now is on a flexible exchange rate system.

Step by step solution

01

Identify the relevant information

The student needs to know when the United States switched from a fixed exchange rate system to a flexible exchange rate system.
02

Understand the different exchange rate systems

A fixed exchange rate system means that a country's currency value is pegged to another currency or a precious metal like gold. The government or central bank maintains the value by intervening in foreign exchange markets. A flexible exchange rate system, also known as a floating exchange rate system, means that a country's currency value is allowed to fluctuate according to market forces without government intervention.
03

Research the history of the exchange rate system in the United States

Prior to the early 1970s, the United States was on a fixed exchange rate system under the Bretton Woods Agreement which was signed in 1944. In this system, the US dollar was pegged to gold and other currencies were pegged to the US dollar. In late 1971, the United States discontinued the convertibility of the dollar to gold, effectively ending the fixed exchange rate system and transitioning to a flexible exchange rate system.
04

Match the correct answer with the historical fact

Based on the history of the exchange rate system in the United States, the correct answer should represent the situation before and after late 1971.
05

Answer the question

The correct answer is: a. The United States was on a fixed exchange rate system prior to late 1971, but now is on a flexible exchange rate system.

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