Because of the ERM, if Britain desires to maintain fixed exchange rates, then what would Britain be forced to do after German reunification?
A) It would increase its interest rate and follow the central country's lead.
B) It would ignore the increase in the German interest rate and hope for the best.
C) It would change over to an exchange rate regime based on gold.
D) It would decrease its interest rate to stimulate its economy.

Question

Quizplus · Accepted Answer

With the ERM, maintaining fixed exchange rates requires countries to follow the lead of the central country, which in this case would be Germany after its reunification. Therefore, Britain would be forced to increase its interest rate to match Germany's in order to maintain its fixed exchange rate.

Because of the ERM, If Britain Desires to Maintain Fixed