With a flexible exchange rate system, to gain credibility with investors or savers, a nation will often:
A) adopt a nominal anchor to keep currency growth in line with a measurable indicator, such as exchange rates or inflation rates.
B) limit the power of the central bank by having elected officials set monetary targets.
C) give more power to the prime minister to stop inflation and lower unemployment.
D) temporarily adopt a gold standard.

Question

Quizplus · Accepted Answer

By adopting a nominal anchor, a country can signal to investors and savers that they are committed to maintaining their exchange rate or inflation rate within a certain range. This can help to build credibility and stability in the currency market. Limiting the power of the central bank or giving more power to the prime minister may not necessarily be effective in gaining credibility, and temporarily adopting a gold standard is not practical for most countries in the modern era.

With a Flexible Exchange Rate System, to Gain Credibility with Investors