Which of the following problems will most likely occur with a system of ﬂexible exchange rates?
A) macroeconomic instability as exports and imports ﬂuctuate with the exchange rates
B) government favoritism toward selected importers of goods and services
C) the emergence of black markets for foreign currency
D) distortions in trade patterns away from the pattern suggested by comparative advantage

Question

Quizplus · Accepted Answer

With flexible exchange rates, the exchange rate is market determined, meaning that it can fluctuate frequently and significantly in response to changes in global economic conditions. This can lead to macroeconomic instability as exports and imports fluctuate with the exchange rates.

Which of the Following Problems Will Most Likely Occur with a System