Answer to Question #256952 in Macroeconomics for Angel

Question

Having studied how an economy works under floating and fixed exchange rates, discuss with relevant cases which exchange rate regime is better.

Answer 1

In my opinion, floating exchange rate regime is better than fixed exchange rate regime. The floating exchange rate regime implies that currency can be influenced by the factors such as price changes to determine the stability of the economy through the interest rate differentials. It allows the monetary authorities as well as fiscal authorities to undertake economic goals such as price stability, inflation control, full employment and stable economic growth among others. It hardens the economy to be very sensitive to world economic policies and natural stabilizers.